It is important for all people to have an estate plan so that they have their affairs in order in the event of their death or incapacitation. Part of this process can include setting up a trust. While a person who creates a trust is known as the “trustor,” the person who benefits from the trust is the “beneficiary.” There is also a third party who manages the trust, known as the “trustee.”
Simply put, a trust is an arrangement that allows the trustee to take care of assets for the beneficiary. In Alabama, there are a variety of different trusts that can be created, and they can be used for a number of different purposes. Continue reading below to learn more and contact an experience Alabama estate planning attorney for guidance creating your plan.
Irrevocable vs. Revocable Trusts
There are several ways a trustor can create a trust for a beneficiary. The kind they choose can vary depending on the assets they want to leave behind in addition to how much control they want to have over the trust. The two main types of trusts in Alabama are:
This may be updated or terminated at any time, as long as the trustor is of sound mind to do so. Here are some of the reasons for Alabama residents to consider setting up a revocable living trust:
- Avoid Probate: Assets that are held in a trust can be passed directly to the beneficiaries when the trustor dies without the need for them to go through probate. This means that the transfer of assets can be done without any court oversight or involvement.
- Ensure Privacy: Probate is a public court proceeding, and anyone can review the documents that are filed there, including a will. This means that complete strangers could potentially look through your will and find out what property you left to your heirs. Trusts, on the other hand, are not filed with the court and do not become part of the public record.
- Avoid Guardianship or Conservatorship: Revocable living trusts are not just for preparing for death, they also help plan for potential incapacitation. If you become incapacitated without a trust, your loved ones may have to go through a costly court proceeding and be subject to the restrictive rules of a court-supervised guardianship or conservatorship. With a trust, your successor trustee can immediately take over management of the assets if something were to happen to you.
- Minimize the Chances of a Contested Estate: If there is a dispute among family members after you are gone, it is much more difficult to contest a trust than to contest a will. The main reason being that trusts are typically set up several years before the trustee passes away or becomes incapacitated and a successor trustee takes over. Because you will likely be personally involved with the management of the trust for a period of time, it is much harder to argue that the terms and conditions of the trust do not reflect your true wishes.
This requires the trustor to give up their rights to the trust. This means they cannot change the trust without the consent of the beneficiary. Here are some possible reasons for Alabamians to consider an irrevocable trust:
- Minimize Estate Taxes: Perhaps the biggest benefit of having an irrevocable trust is to minimize your estate taxes. Property and assets that are placed in an irrevocable trust do not count toward the gross value of your estate. For those with a substantial amount of assets that go beyond the estate tax exemption, it may be advantageous to set up an irrevocable trust.
- Protect Your Assets from Creditors: In order to shield your assets from creditors, the trust usually needs to be irrevocable, and the trustee and beneficiary usually need to be unrelated parties. These are known as “asset protection trusts”.
- Become Eligible for Government Programs: Certain types of irrevocable trusts can be used to help someone qualify for a government program that has strict income and asset limitations.
Other Types of Trusts
Outside of the two main trusts, there are a variety of other options available for trustors to choose from when setting up their plan. Each one has a different purpose, so it is important to make sure you are setting up a plan that is right for you and what you wish to leave behind. This can be made possible by having an attorney guide you through the process.
Other common trusts that people in Alabama choose can include:
- Asset protection trusts
- Life insurance trusts
- Testamentary trusts
- Inter vivos trusts
- Special Needs Trusts
- Charitable remainder trusts
- Charitable leads trusts
- Supplemental needs trusts
- Generation-skipping trusts
- Qualified personal residence trusts
Contact our Firm
Stone Crosby, P.C. has proudly served clients in Alabama for over 100 years. Our firm has experience handling matters including divorce and family law, estate planning and administration, business law, employment law, class actions, consumer protection, business law, real estate law, among many others. If you require quality legal representation, contact our firm today to schedule a consultation.