San Jose Trust Creation Attorneys

Every estate plan is unique, and the types of assets that go into each can vary from person to person. For some, creating a trust is the most important part of their estate plan, especially when leaving their assets to relatives or other beneficiaries. For people in the San Jose area, the estate planning legal team at Huber Fox, P.C., can help you establish a trust for your loved ones.

What Is a Trust?

In a trust, a third party, or trustee, lists, sells, and distributes a decedent’s assets on behalf of an heir or beneficiary. A trust agreement is a legal document used for this procedure. The document containing detailed information about their real estate is filed by the trust maker, also known as a grantor, settlor, or trustor. This comprises guidelines for managing trust assets, allocating trust fund assets, and providing instructions for unexpected occurrences like incapacity or death.

Given the legal structure of trusts, any assets can be included in them. However, varied situations can make enforcing them after the grantor’s passing complicated. The trustor should take the time to rename their various assets in the trust’s name rather than their own. A separate will is also recommended as a secondary form of insurance and can aid in asset allocation.

Many grantors can complete the documentation required to set up a trust fund, but they often need help with maintenance. Only privately owned assets can be placed in a trust. Jointly owned assets are not permitted with a trust fund application unless ownership of the trust is shared across several participants.

How Are Trusts Created?

Given their adaptability, trusts are a popular estate planning option, but their usefulness varies from person to person. Determine the value of your real estate and assets, as well as whether a transfer of assets is necessary. Then, assign a value to each. Next, decide when the transfer of assets should occur—during your lifetime, after your death, or at some other predetermined time.

Afterward, decide how you intend to transfer these assets and whether you want to keep earning money from them. A trust gains power when an estate planning process grows in scope, beneficiaries are taken into account, and the frequency of asset transfers required increases. For some trusts, like a testamentary trust, a will is required to add assets to the trust. For others, the named beneficiaries will inherit their property when the grantor passes away.

What Are the Different Kinds of Trusts?

The most common forms of trust include irrevocable, revocable, living, and testamentary trusts. Each has a specific intended asset allocation plan and the ability to modify it. Revocable trusts are established by the grantor and can be changed during their lifetime, whereas irrevocable trusts must remain untouched until the grantor passes away. For a living trust, assets can be added to the trust during the grantor’s lifetime and can be changed as the grantor pleases. A testamentary trust, on the other hand, can only be filled with assets listed in a will, essentially creating the trust after the death of the grantor. Some other kinds of trusts used in estate planning include:

• IRA Trusts: A person can leave the money in their retirement account (IRA) to a beneficiary by using an IRA trust. These are often designed to preserve the assets in an individual’s IRA trust against potential financial hardships faced by the beneficiaries. They could be put up to guarantee the payment of estate taxes as well.
• Special Needs Trusts: This is also known as a “supplemental needs trust.” It is created to offer compensation to a beneficiary incapable of maintaining meaningful employment due to a physical or mental disability, a chronic or acquired illness, or both. A special needs trust is established to protect recipients’ access to critical government benefits while they are still alive.
• Charitable Lead Trusts: In a charitable lead trust, a named beneficiary or the person who founded the trust receives the remaining funds after a specified period. During this time, the charity receives a predetermined sum, either as a set annuity or a percentage, from the trust. This arrangement provides an estate and gift tax exemption for the amount left to charity in addition to helping a favorite organization. Additionally, if properly drafted, the individual who creates the charitable lead trust is eligible to claim an instant income tax credit for the contribution made to the charity.
• Charitable Remainder Trusts: An irrevocable trust known as a charitable remainder trust allows payments to be made to an individual for a set period, such as a lifetime, in the form of a fixed sum or a unit trust amount. The balance goes to a designated charity. A charitable remainder trust is an effective strategy for transferring highly appreciating assets, evading capital gains taxes, and helping a chosen charity. Without having to pay capital gains taxes, the charity is entitled to sell the asset and invest the revenues from the sale. If properly set up, the person gets an instant charitable income tax deduction, possibly lowering their income taxes. In addition, the person is certain of receiving compensation for a set period, or for life, with the understanding that their preferred charity would also profit.

When creating a trust, one of the most significant outcomes of the process is anticipating estate taxes. The California Tax Code dictates that the trust’s whole value is subject to estate tax in California if all the trustees or noncontingent beneficiaries reside there. For federal tax reasons, whether you inherit money, stocks, or real estate, inheritances are not regarded as income. However, unless they come from a tax-free source, any further earnings on the acquired assets are subject to taxation.