This term refers to a financial arrangement in which a person in elected office sets aside their business interests to avoid a conflict of interest.
It’s one of many types of trusts, all of which are designed to keep assets safe in the long term, either for you or for your loved ones.
Let’s look at some common types of trusts, their benefits and what pitfalls to avoid.
Revocable Living Trust
This is a trust that’s designed to protect your assets during your lifetime. It doesn’t offer you any tax savings, but It does keep your assets safe from probate. You can serve as the trustee as long as you’re fit to do so, but this type of trust also allows you to designate a successor trustee in the event of your death or incapacitation.
It’s a good type of trust for a middle-aged or older person who has assets that they want to protect if something happens to them. It also gives you a vehicle to manage your assets and pay off your debts and other expenditures during your lifetime.
This type of trust can have a negative impact on your eligibility for Medicaid. And Robert Weiss, an investment advisor for J.P. Morgan, told the Wall Street Journal that some people don’t put all the assets they should into these trusts, and so those assets aren’t protected from probate.
Otherwise known as a by-pass trust, this trust can be used by a married couple to lower the amount of federal estate taxes owed by their estate.
Under current IRS rules, federal estate taxes are not owed on an estate of $5.49 million or less. If you or your spouse have assets that exceed that amount, it is important to let your elder law attorney know so they can assist you in preparing your will. Without this type of trust, your estate may incur a substantial tax liability after your death, leaving with less money to pass along to your loved ones.
Special Needs Trust
This type of trust is typically set up to help a disabled person who receives government benefits such as Medicaid or Social Security. When you place that person’s funds in a special needs trust, you ensure that they can continue to access their government benefits – which are dependent on a certain income and asset level – while also paying for their needs.
When the disabled person dies, any funds remaining in the trust must be used to reimburse the government for funds expended on their behalf, assuming the original source of the money came from the disabled person. If the money came from a third party, anything remaining in the trust can pass on to the disabled person’s heirs.
Trusts are an important estate planning tool, but like any key financial matter, it’s not something you should attempt on your own. If you need help setting up any of the types of trust we’ve described above, contact the attorneys at Yorkway Law.
We’ve spent years helping our clients make sure their assets were safe, both for themselves and their families. When you work with us, you’ll come away with a trust that you can rely on.