Advanced Maryland Estate Planning: The Power Of Trust(s)

Estate planning is the science, or art, of preparing your legal and financial affairs for the unexpected or the inevitable. In this field, trusts are some of the most powerful and versatile tools used by estate planning attorneys because they can be set up to fill almost any need. This article covers the essentials everyone in Maryland should know about estate planning with trusts, including:

• Why you probably need a trust in addition to other estate planning tools like wills.
• Eight different trusts that can be used in advanced estate planning in Maryland.
• How trusts can be used for asset protection as well as estate planning in Maryland.

Beyond Wills: Who Needs A Trust?

The most fundamental, or at least well-known, estate planning tool is probably the last will and testament. A will, as these are known, provides directions to the probate court for the distribution of your estate to different beneficiaries.

A trust, on the other hand, allows your estate to bypass probate entirely by moving assets out of your name and into the ownership of the trust, to be distributed according to the rules and guidelines you outline before you die.

If you own property and/or you have children that are under 18, having a trust becomes essential. For everyone else, they are a strong estate planning option, especially with all the diverse and flexible types of trust and estate planning that attorneys can help you implement.

What Are The Most Common Types Of Trust Used In Maryland Estate Planning?

The most common type of trust is the revocable living trust. These are trusts that are not truly concrete until you die, which is why it is called revocable, or “living”. You can add or remove assets, change the rules that govern it, or modify it easily while you are alive.

As a result, there is no change in tax status and no separate returns to file until you die. All it does is make sure your estate smoothly passes to your beneficiaries without going through probate. Its simple status, clear purpose, and powerful yet flexible set-up have made revocable living trusts extremely popular in estate planning.

So much so that it is almost a stretch to call them a tool of advanced estate planning, especially when compared to the other types of trust out there.

What Other Types Of Trust Are Used In Maryland Advanced Estate Planning?

While revocable living trusts remain the most common type of trust used throughout Maryland for estate planning purposes, they are far from the only one available. Each of the following has its own specific set-up, status, purpose, and rules, as well as unique strengths and weaknesses in terms of estate planning potential.

What Are Medicaid Trusts?

Medicaid trusts, or elder law trusts, allow you to prepare for long-term care needs by divesting yourself of almost all wealth well in advance of your needs to better qualify for state assistance with healthcare needs. They are not a good idea for most people.

What Are Special Needs Trusts?

If anybody who is going to inherit money from you has a special need or is on government assistance, they may need a trust set up to take that into consideration. This will allow them to benefit from your gift without causing the government to stop providing the benefits they also need.

What Are Charitable Remainder Unit Trusts?

There are many kinds of trusts that can be set up to benefit one or more specific charities after you die, but the charitable remainder unit trust or CRUT, does a whole lot more. These trusts help eliminate or defer capital gains taxes on property or stocks, giving you a big tax deduction while still providing a pension for you as well. The remainder then goes to your beneficiaries when you pass away.

What Is A Tax Minimization Trust?

Many types of trusts used in advanced estate planning are designed to help reduce tax liabilities, either to you or to your estate and beneficiaries. The Irrevocable Life Insurance Trust (or ILIT) is a great and traditional example of this. These trusts are entirely outside your estate, meaning you give up all control over them, but as a result, neither you nor your kids pay estate taxes on the benefits when they obtain it.

Such trusts are generally best suited for clients with more than $6 million or so in assets, who will thus otherwise be subject to federal estate taxes.  The way ILITs are set up is very restrictive and you often cannot make any changes or access it at all. Which also means they may not be the best option for everyone. Many couples or individuals will prefer a SLAT or IDGT instead.

What Are Spousal Lifetime Access Trusts?

Spousal lifetime access trusts (SLATs) provide a bit more flexibility than a traditional irrevocable living trust because your spouse can access the money in the trust if you have a need, even though you cannot access it.

What Are Intentionally Defective Grantor Trusts?

IDGTs, or intentionally defective grantor trusts, allow you to swap one asset for another. In other words, you can move assets in and out of such trusts as long as the overall value is maintained. You cannot revoke it, but there are things that you can do to have a bit of control while still ensuring that the assets within are not counted as part of your estate.

What Are Domestic Asset Protection Trusts?

These are trusts designed to provide privacy, and are sometimes also called land trusts. Those are to provide privacy over held assets, usually properties. Those are also irrevocable to prevent access by creditors, depending on the state. Some states will not allow you to create and fund such trusts, unfortunately.

What Is A Deferred Sales Trust?

To complete our roundup of some of the many diverse types of trust out there, we have the DST or deferred sales trust. These are set up when you want to sell a property but want to defer that tax for several years. You can spread it out over a period of time by using a deferred sales trust.

While those are probably the most common trusts used in advanced estate planning, there are dozens if not hundreds of others used for estate planning in Maryland. And not just for estate planning either.

What Are The Most Common Assets Protection Strategies Used In Estate Planning?

Another purpose of estate planning is to provide asset protection, such as protection from taxes.

Many of the aforementioned estate planning trusts, such as the ILIT or the SLAT, can set aside money so that it is not part of your estate. As a result, you will not have to pay estate taxes on them.

This is especially common and helpful when life insurance is involved. A life insurance policy that is outside of your estate can then be used to cover the estate taxes you do have to pay.

Taxes are not the only thing estate planning tools can help provide protections for, however.

Individuals with a large number of properties may rightly be concerned that a lawsuit or some other liability issue against them could end up seizing their properties, and prefer if they were insulated from that risk. That way, if some judgment happens against them, then their family still has and is able to inherit those properties.

This would usually be done with an asset preservation or protection trust, for example, a domestic asset trust to keep that property separate from their financial life. There are some advantages and disadvantages to doing so, however. The main disadvantage being that most people are unlikely to really need it, but if you do know for certain that you do need it, it is usually too late to set one up.

Regardless of whether asset protection, tax minimization, or preserving and passing on your legacy is your biggest priority, trusts and advanced estate planning can be a flexible and diverse set of tools. They all have one thing in common; however, it is best to set them up with the help of trained, professional, and experienced estate planning attorneys. For more information on Advanced Estate Planning In Maryland, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (301) 396-7576 today.