Which Trust Fund is Right for Me?

Last week, Michna Law Group discussed the "Basics of a Trust Fund". In that article, we covered the two primary types of trust funds: a living trust and an after-death trust. As a quick recap, here are the differences between the two:

Living (Inter-Vivos) Trust

• Activated during grantor's lifetime
• Assets distributed to beneficiaries upon grantor's death
• Revocable or irrevocable
• Avoids probate

After-Death (Testamentary) Trust

• Activated after grantor's death
• Considered part of a will
• Reviewed in probate court prior to asset distribution
• Revocable during grantor's lifetime

In addition to inter-vivos and testamentary trusts, there are numerous other types. Today, we will examine the following trusts:

• Asset Protection
• Charitable
• Constructive
• Special Needs
• Spendthrift
• Tax By-Pass
• Totten

Asset Protection Trusts

Often (but not always) set up in a foreign market, asset protection trusts are created for the purpose of protecting assets against the threat of creditors. To ensure that the grantor is not a current benefit, these trusts are typically set for a number of years. After the trust's term is up, the assets can be returned to the grantor, assuming that the grantor isn't under attack by creditors.

Charitable Trusts

Set up to benefit the general public or a specific charity, charitable trusts can also be used as a strategic tool for financial planning. This trust is typically set up as part of an estate plan, permitting the avoidance of estate or gift taxes. Not only does this offer tax benefits for the grantor and his/her heirs, the grantor's altruistic gesture is typically recognized by the charity of choice. While these trusts are primarily irrevocable, grantors can establish a revocable version until his/her death. 

Constructive Trust

The only "implied trust" on this list, constructive trusts don't require a formal establishment. Instead, if a person's intention is to distribute assets to another, a court may recognize that a trust was, in fact, created.

Special Needs Trust

A special needs trust is created mainly to provide the beneficiary with additional assets, such as an inheritance, while simultaneously maintaining said beneficiary's eligibility for government benefits. In many instances, this is a necessity because receiving a large sum of money can disqualify the beneficiary from government benefits. Because the beneficiary receives government benefits, he/she can not act as trustee. However, the beneficiary can be the grantor of the trust.

Spendthrift Trust

Similar to an asset protection trust, a spendthrift trust is set up to protect the beneficiary from having to give assets in the trust away to creditors. Once the trust's assets are distributed to the beneficiary, they are no longer protected against creditors.

Tax By-Pass Trust

A tax-by-pass trust is a legal way to avoid federal taxes. The purpose of this trust is for a spouse to leave the other spouse and their children with tax-free assets, Without this type of trust, assets are tax-free for the children up to a certain legal limit. Any money over that limit can be heavily taxed by the federal government, leaving children to pay thousands of dollars in taxes.

Totten Trust

The final type of trust that we're going cover is a totten trust. This trust provides many of the same benefits as an inter-vivos trust, including its revocable nature and the allowance of assets to avoid probate upon distribution. That said, totten trusts can't be used with a property. Alternatively, totten trusts are primarily used for financial accounts and securities.

Summary

As you can see, there is a type of trust for virtually any circumstance. The wide variety allows people to structure their assets in a way that's most beneficial for them. To have a conversation with a trust lawyer, please contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

Basics of a Trust Fund

Last week, we discussed the importance of setting up a will, a service offered by +Michna Law Group. This week, we're going to talk about another service we offer: setting up a trust fund.

Define the Terms

A "trust fund" can be defined as a legal entity that holds assets for an individual or an organization. This can include cash, stocks, bonds, property, or additional financial products.

The individual or group benefiting from a trust fund is known as a "beneficiary".

The one who sets up a trust fund can be referred to using several terms, including a "grantor", a "donor", or "settler".

Lastly, the individual or group in charge of maintaining a trust is known as a "trustee".

Primary Types of Trusts

Trusts come in two primary flavors: living and after-death.

Living Trust

A living trust is also known as an inter-vivos trust. This form is set up during the lifetime of the grantor, who sometimes acts simultaneously as the trustee. Upon the death of the grantor, the assets in the trust are then distributed to the beneficiaries in compliance with the original terms and conditions of the trust.

Living Trusts can be either revocable or irrevocable, with the former representing the most common type. While this type of trust allows everyone involved to avoid probate, assets in the trust are still susceptible to state and federal taxes.

After-Death Trust

After-death trusts are also referred to as testamentary trusts. In this format, the trust is activated upon the death of the grantor, or "testator" in this case. Testamentary trusts are comprised as a part of the testator's will, thus need to be reviewed by a probate court. Because of this, a longer period is needed before the testator's assets are distributed to the beneficiaries.

Summary

While we've discussed the basic information pertaining to a trust fund, there are many additional types of trusts with corresponding benefits. For more information on these types of trusts, refer back to our blog next week.

For additional questions pertaining to trust law, contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

Why Everyone Needs a Will

Although Michna Law Group primarily handles real estate closings, our firm also is known for practicing law pertaining to wills and trusts. Today, we'd like to discuss the former and why setting up a will is so important.

First, Merriam-Webster defines a "will" as "a written instrument legally executed by which a person makes disposition of his or her estate to take effect after death".

When many think of a "will", our thoughts immediately tend to head towards the morbid side of things with that final word: "death". However, similar to insurance (life, health, car, etc.), wills are better thought for their primary purpose: To protect your assets and ensure that your wishes are followed.

With that said, here are a few good reasons to create a will:

1) To appoint a legal guardian for your children.

2) To declare who will receive your assets and how they will be divided.

3) To pass on an economic interest, such as a business or stocks.

4) To donate money to your favorite charity.

5) To ease the burden for your loved ones during a surely difficult time.

All of these reasons are viable reasons to create a will, especially with the last one having the added benefit of preemptive planning. Many are of the mindset that wills are only something that people in their middle age can or should form. However, it's important to note that a will can be formed by anyone of legal age, which in most states, is 18.

For additional questions pertaining to wills, contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

Anti-Discrimination in Home Buying

Many people may be afraid of facing discrimination when applying for credit. However, numerous protections are offered throughout this process.

The Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating against applicants throughout the transaction process. These protections are focused on discrimination because of race, color, religion, national origin, gender, marital status, or age.

In addition, creditors are unable to discriminate against an applicant due to any portion of his or her income deriving from a public assistance program (i.e. welfare). For those afraid of retaliation for exercising rights under federal consumer credit protection laws, there are protections in this case as well.

Not only does the ECOA apply to credit transactions involving residential property, it also extends to other credit transactions. For example, if you're applying for a credit card or an auto loan, you would be covered here.

Another law, the Fair Housing Act, prohibits housing discrimination because of race, color, religion, sex, disability, familial status, or national origin. This ranges from someone selling a home to you, loan application, property improvement, and residential real estate appraisal

For additional questions regarding real estate law, contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.