As a nurse, estate planning may seem unimportant. You may think it’s something for the rich and elderly. But estate planning is an important part of a financial plan at any age. Estate plans contain many legal documents. And a trust is one document worth considering. In this blog post, you’ll explore trusts, breaking down what they are and how they might fit into your estate plan.
Understanding Trusts and Estate Planning
As a graduate nurse, I didn’t consider estate planning. Busy working and raising a family, I had little time for anything else. When the kids started school, my husband and I wondered about their future if something happened to us. We also wanted to make known our medical decisions if we couldn’t speak for ourselves. We decided to talk with an attorney about an Advanced Directive. The attorney suggested we explore estate planning and a trust. We pushed back because we had little assets. But we learned estate planning isn’t only for the wealthy or elderly. Creating a trust is an important step for anyone who wants to help protect assets and distribute their assets according to their wishes.
What is a Trust?
A trust is a legal arrangement that allows you to transfer your assets, such as property, investments, or cash, to a separate entity. A trustee manages the trust. The trustee can be an individual, a financial institution, or you. The trust holds and manages these assets for the benefit of your beneficiaries.
Types of Trusts
Types of trust vary. Trusts address specific needs. Some examples of trusts include:
- Living Trusts created during the trustor’s lifetime, allow control and transfer of assets while alive. The trust is no longer valid when the trustor dies. Living trusts can be revocable or irrevocable.
- Testamentary Trusts, created from the trustor’s will take effect after death. Testamentary trusts commonly provide for the financial needs of minor children or special needs dependents.
- Revocable Trusts can be revoked or altered by the trustor while alive. They offer flexibility and control over the trust assets.
- Irrevocable Trusts cannot be revoked or altered once created. They provide asset protection and can be used for tax planning, charitable giving, or Medicaid planning.
- Charitable Trusts benefit charitable organizations or causes. They can provide income to the trustor or their beneficiaries while supporting a charitable purpose.
- Special Needs Trusts are created for individuals with disabilities without risking their eligibility for government benefits. They aim to enhance the quality of life for the beneficiary.
- Marital Trusts, also known as “A” trusts, allow the trustor to provide for their surviving spouse while minimizing estate taxes.
- Bypass Trusts, also known as “B” or credit shelter trusts, aim to optimize estate tax exemptions for married couples. They help preserve wealth for future generations.
- Irrevocable Life Insurance Trusts can help reduce estate taxes and provide flexibility by holding life insurance policies outside of the trustor’s estate.
- Grantor Retained Annuity Trusts (GRATs) are irrevocable and allow the trustor to transfer assets while retaining an annuity payment for a specified period.
Benefits of Trusts in Estate Planning
Trusts provide benefits that can help make a significant difference in your wealth distribution. Here are some benefits of trusts to consider.
Privacy and Confidentiality
Trusts offer privacy, unlike a will which is subject to probate. When your estate goes through probate, it becomes a matter of public record. Trusts, on the other hand, remain private, allowing your beneficiaries to avoid the spotlight during a difficult time.
Probate can be lengthy and costly. By placing your assets in a trust, you can help your loved ones avoid the complexities of probate court. This can help ensure a smoother transition and quicker access to the inheritance.
Managing and Distributing Assets
Trusts allow you to specify the distribution of your assets. This control can be valuable if you have minor children or beneficiaries who may not be ready to manage an inheritance.
Minimizing Estate Taxes
Depending on the trust you choose, you may be able to reduce your estate tax liability. Certain trusts aim to reduce estate taxes by removing assets from your taxable estate. Consider talking with a tax professional to learn more.
Providing for Special Needs
If you have a loved one with special needs, trusts can help you set up financial support without risking their eligibility for government benefits.
Setting Up a Trust: A Step-by-Step Guide
Creating a trust doesn’t have to be a daunting task. Here’s a guide to help you.
Choose the Right Trustee for You
Your trustee will be responsible for managing the trust and distributing the assets according to your wishes. You can be the trustee. You can also choose a family member, friend, or a professional trustee.
Decide the Assets You’ll Fund
Decide which assets you want to place in the trust. Consider real estate, investments, and bank accounts as examples.
Create the Trust Document
Considering working with an attorney to create your trust. While you can create a trust on your own, it is a complex legally binding document containing terms and conditions. An attorney can help you make sure your trust is complete.
Fund the Trust
Transfer ownership of your assets to the trust. This may involve changing titles, updating beneficiaries, or retitling accounts.
Regularly Review and Update
Life is constantly changing, and so should your trust. Regularly review and update the trust to reflect any changes in your circumstances or wishes.
As a nurse, your dedication to caring for others extends to planning for your own future. Trusts help offer a powerful way to protect your assets. Trusts also help provide for your loved ones. By understanding trusts and incorporating them into your estate plan, you’re taking a proactive step toward securing your future and for those you hold dear.
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These concepts were derived under current laws and regulations. Changes in the law or regulations may affect the information provided. This information is not intended to be used – and cannot be used – to avoid penalties under the Internal Revenue Code.
Georgene Collins, RICP®, RN, PhD, MBA is a registered nurse turned Financial Advisor at Airey Financial Group. Georgene helps other nurses take control of their finances and prepare for retirement. Georgene began her career with Airey Financial Group in 2017 after retiring from 30 years in healthcare.
Georgene holds the Retirement Income Certified Professional (RICP®) designation from The American College of Financial Services. She holds health and life insurance licenses and a long-term care certificate in Indiana and Illinois. Georgene is a Registered Representative and Investment Advisor Representative and has earned the FINRA Series 63 and 65 registrations.