Should Your Maryland Estate Plan Include a Trust?

Trusts are a very important tool in estate planning. They often are the best way to address an individual’s needs and wishes. Do you wonder if your estate plan should include one? While most people understand generally what a Last Will and Testament (or Will) does, trusts often cause confusion. Many people aren’t certain what a trust does or whether they need one.

The best way to demystify trusts is to first explain what one is and how they work. Then, we give examples of common types of trusts that we use in our estate planning and elder law practice at The Law Office of Henry Nash in Rockville, Maryland.

What Is a Trust?

A trust is a legal arrangement that has a specific structure. The person who sets up a trust is called the grantor or settlor. The grantor establishes the trust by executing a legal document called the trust instrument, trust document, or simply the trust.

In the trust document, the grantor sets out a number of provisions, including naming the trustee (and often a successor trustee) and beneficiaries. This document also defines the terms for distribution of the assets by the trustee to the beneficiaries.

The beneficiaries are the people who receive distributions from the trust. The trustee is the individual or organization responsible for management and administration. A trustee has fiduciary duties by law, which is a high level of legal duty relating to fulfillment of the trustee’s responsibilities under the trust.

For a trust to be operational, the grantor must take a second step after execution of the instrument. A trust is not in effect until the grantor funds it, which means putting assets into an account created for the trust.

A trust may be funded by the grantor during his or her lifetime, or it may be funded on the grantor’s death. Funding on the death of the grantor is usually accomplished through a Last Will and Testament that provides for the estate assets to be placed into the trust.

Types of Trusts

Trusts come in many different types, each designed to accomplish specific purposes. There are a couple different ways to categorize trusts.

Every trust is either revocable or irrevocable. If the grantor creates a revocable trust, the grantor may change or revoke the trust at any time. If the grantor creates an irrevocable trust, it cannot be changed or revoked for any reason.

While all trusts are created by a document executed during the grantor’s lifetime, they may take effect at a different time. A trust may be a living trust (also called an inter vivos trust) or a testamentary trust. A living trust is funded and becomes effective during the grantor’s life. A testamentary trust is funded and becomes effective on the death of the grantor.

Benefits of Having a Trust Included in Your Estate Plan

Using a trust in an estate plan has a number of benefits, including addressing the unique circumstances of the grantor. Advantages of including a trust in your estate plan include:

• Avoiding probate to maintain privacy of individual and family financial information, as well as save time and court fees
• Protecting assets by controlling how they are distributed after the grantor’s death
• Protecting assets during the grantor’s lifetime in situations like elder financial exploitation
• Minimizing estate taxes (in some situations)

Asset protection is one of the significant benefits of a trust, both during and after the grantor’s lifetime. If beneficiaries receive property and assets in a Will, they immediately get full control of all the assets. In contrast, a trustee can be directed to distribute assets over time and only for certain purposes, to protect the assets from being squandered or misused by the beneficiaries.

Common Types of Trusts in Maryland Estate Plans

While there are many different types of trusts, there are two kinds that many individuals use in a Maryland estate plan.

The first common type is a revocable living trust. This type of trust is suitable to many different circumstances. It is created and funded during the grantor’s lifetime. Typically, the terms of the trust provide that it becomes an irrevocable trust on the grantor’s death. The grantor is the trustee during his or her lifetime. As the name indicates, it can be changed or revoked by the grantor at any time prior to death.

The second common type of trust in Maryland is a Special Needs Trust or Supplemental Needs Trust. These are created under a specific state law. A properly drafted SNT enables a qualifying elder to receive benefits from the trust in addition to Medicaid benefits. As such, SNTs are a valuable tool in Medicaid planning.

How Do You Know If You Should Create a Trust?

The only way to evaluate whether a trust would be beneficial for you is to consult with an experienced Maryland estate planning attorney. Filling out a form that someone gives you or using an online service to create a trust can have disastrous consequences for you and your family.

Your attorney will fully discuss your situation and goals before advising you whether a trust should be part of your estate plan. If you decide to create one, your lawyer creates a document specifically for you that details how the trust will operate. If you create a living trust, your attorney will also help you set up funding. If you create a testamentary trust, the lawyer will ensure that you have the necessary documents (like a Will) to implement it after your death.

Importantly, a well-crafted estate plan includes more than just a Will and sometimes a trust. Other documents, including a durable financial power of attorney and an advance health care directive are essential to protect you during your lifetime. When you talk with an estate planning lawyer about a trust, your attorney will also explain these other critical documents that are part of a complete estate plan.

Talk With a Respected Rockville, Maryland Estate Planning Attorney About Trusts

Our practice at The Law Office of Henry Nash includes estate planning, elder law, and Medicaid planning. We have extensive experience helping clients evaluate their estate planning needs and determining whether a trust provides benefits in a client’s individual circumstances. When a client sets up a trust, we create the appropriate documentation and assist with setting up the trust.

We work with clients in Rockville, throughout Montgomery County, and elsewhere in Maryland. We also assist out-of-state clients who have loved ones residing in the state. If you have any questions or concerns about any issues relating to any of our services, we welcome you to call us at (301) 998-6111 or contact us through our online form.