Thinking about setting up a trust in Georgia? Are trusts really necessary? Isn’t a Last Will and Testament enough for simple estate planning?
Ultimately, the tools you choose to create your Marietta estate plan depend entirely on what you are trying to achieve.
Some folks just want to make their estate settlement simple for their loved ones. Others want to bypass the probate process, avoid nursing home poverty or minimize estate taxes.
Many couples want to make their children’s inheritance divorce-proof or provide for a special needs family member, while others are concerned about a second-marriage situation.
Whatever your reasons for considering a trust, it’s important to understand how a trust functions and what the different types of trusts available in Georgia can accomplish.
In this article, we cover a short comparison of Wills and trusts and introduce 10 of the most common types of trusts Marietta residents like to include in their estate plans.
Note: If you want to brush up on the basics of Georgia estate planning (Wills, Probate, Power of Attorney, Revocable Trusts, Irrevocable Trusts and Advanced Healthcare Directives) take a look at these free ebooks.
For some families, especially young families with very young children, a Last Will and Testament and disability documents may be all you need in your estate plan. However, most families with teen or adult children fare best with a slightly more advanced, multifaceted estate plan.
One of the primary vehicles we use these days are trusts. Trusts offer many benefits and can be a great way to protect your estate and provide for your loved ones.
A major reason trusts are so popular today is that they allow you to avoid the probate process required to carry out the terms of a Will.
Why do people want to avoid probate? The typical answer is, it is often a lengthy, stressful process and expenses can run high.
While all probates are different, every probate takes between several months to several years to complete. Probate often involves multiple court filings. Every time a document is filed it must be stamped, undergo review by a law clerk, get signed by a judge, and go back through the processing department before it is finally available for the family. Those things take time.
On top of that, there is the potential for attorney delays, courthouse delays, paperwork processing delays, financial institution delays, and delays from other title companies that may be involved.
Not everyone involved in the probate process is going to be proactive. If there is one party that is not in complete agreement with how the process is going, they can file what Georgia state law refers to as a “caveat,” which will basically shut down the probate process until court hearings can happen and a judge can force the probate forward.
Regarding cost, again every probate is different –different heirs, different issues, different underlying assets, different complexities – but once you factor in things like court costs, attorneys’ fees, executor compensation and other miscellaneous costs, probate can range anywhere from $3,500 to $15,000 – or more.
If you happen to be a married couple, you may have to go through the probate process twice – once when the first spouse dies and again when the second spouse dies. If you happen to own property in another state, you may have to go through it three times.
I can tell you this. When anyone must go through the probate process, they unfortunately never leave happy. It’s something that nobody wants to go through.
In addition, Wills go into effect only after the person who makes the Will (the “testator”) dies. Wills don’t help your loved ones if you are still alive but incapacitated. On the other hand, many trusts go into effect the moment they are signed. When done right, a trust means your loved ones receive their inheritance immediately upon your incapacitation or death.
Another reason you may want to incorporate a trust into your estate plan is because you are a private person. Perhaps you don’t want the public to know what you have and who is getting it. When a Will is filed with the Court upon your passing, it becomes available to the public. Trusts can help you keep your family’s business private.
Consider the story of the Marietta Country Club mother who left her daughter an inheritance of jewelry and furs. The Will was filed with the Court and therefore available for the world to see as public record. Soon after the Will became public record, the daughter went on vacation.
She posted all about the fun she was having at the beach on social media.
Some clever criminals had learned of her newfound inheritance through public court records. They followed her posts on social media, saw she was away from home, and took the opportunity to relieve her of her jewelry and furs while she was gone.
While this is of course an extreme story, most of us would feel safer having our affairs kept private. Trusts can accomplish this. Unlike Wills, trusts are never filed with the Court and therefore never released as public record.
Years ago, people perceived trusts as something only the wealthy would have. These days, there are many different types of trusts that even the most basic estate plan can benefit from. You can use trusts to manage assets, personal property, insurance plans, retirement plans, real estate, and much more.
Setting up a trust can enable you to:
To know for certain if you could benefit from a trust, it can be helpful to meet with an experienced Marietta trusts lawyer who can assess your needs and explain the trusts most appropriate for your specific goals.
Want to learn more about Georgia Wills and how to plan your estate? We encourage you to read our free ebook – Estate Planning: A Complete Guide for Georgia Residents.
There are many different types of trusts, but all involve a similar cast of players: (1) the person creating the trust (the “grantor”), (2) the person or corporation holding the trust (the “trustee”), and (3) the person who will benefit from the trust (the “beneficiary”).
In general, a trust is a legal document that gives a trustee instructions on how to handle certain assets upon your death rather than have the Courts determine the distribution of your assets. Any assets involved in a trust will not go through probate upon your death. The grantor of the trust defines the terms of the trust and instructions for the trustee on distributions to beneficiaries.
You can create a trust while you are living (“living trust”) or via a Will after your die (“testamentary trust”). Living trusts may be irrevocable or revocable. Testamentary trusts are always irrevocable.
Several types of trusts are favorites among Marietta estate planners. Each type of trust is designed to accomplish different objectives depending on your estate planning goals. We invite you to learn more about Georgia trusts in our free ebook – Georgia Trusts 101: A How and Why Guide.
Also called “living trusts” or “revocable living trusts,” Georgia revocable trusts (Ga. Code Ann. § 53-12-40) are perhaps the most common type of trust and a trouble-free Will alternative. These trusts can accomplish what a Will would accomplish, but without the probate process and public court records.
Instead of the Court distributing your assets, a trustee that you select distributes the assets according to your instructions – without Court supervision. This means that, instead of your heirs receiving their inheritance months, sometimes years, down the road, the beneficiaries in a revocable trust receive their inheritance right away.
When you transfer assets into a revocable trust, you still maintain full control of the assets. As long as you are mentally competent, you can change the beneficiaries of these trusts, or add, remove or sell the assets anytime you wish.
A revocable living trust enables you to:
Consider a married couple, John and Jane, who have three adult children and are planning their estate. Jane’s mother died a few years ago with a Last Will and Testament. It took an entire year for Jane and her siblings to receive their inheritance due to family disputes and probate delays.
Now, Jane and John want to prepare an estate plan that will help their own children avoid those same difficulties.
Jane and John want their Indian Hills home estate to pass entirely to the surviving spouse when one of them dies. Once the second spouse dies, they want everything to go immediately to their three children, divided equally. They want their daughter Linda to be in charge once they are both gone.
What John and Jane want is a Revocable Living Trust. They can do whatever they want with the trust while they’re alive. They can buy, sell, manage and donate the assets – no restrictions. And nothing will change once one spouse dies.
Linda will be the “successor trustee,” with the three children (Linda included) as equal beneficiaries of the trust upon John and Jane’s deaths.
John and Jane title their Marietta real estate into the name of the trust to avoid probate. They also title their investment account into the name of John and Jane as trustees of their Revocable Living Trust. This way, upon their deaths, the investment account can be split immediately between the three children.
John and Jane also title other assets into the trust, including certificates of deposit, mineral rights and individually held stocks.
There are also assets that don’t need to go into the trust – assets that wouldn’t go through probate anyway. Non-probate assets include instruments that already have designated beneficiaries, like IRAs, 401(k)s, life insurance policies and annuities.
Now after John dies, Jane wants to move nearer to Linda and her grandchildren. With a Will, it can take a year or longer to be able to sell a house if it isn’t titled correctly, but because Jane and John had set up the Revocable Living Trust, Jane is able to sell her Marietta house immediately.
Years after John’s death, Jane marries a man with an adult daughter. Linda and her brothers are a little worried about their inheritance. Will it go to the new husband upon Jane’s death? Will it go to the step-sister?
No. According to the terms of the trust, once the second spouse dies, the assets go to the beneficiaries (John and Jane’s three children). After Jane passes away, Linda can distribute John and Jane’s $600,000 investment account immediately to herself and her two brothers, avoiding any family disputes over the money.
As you can see, a Revocable Living Trust is a wonderful alternative to a Last Will and Testament that can help ensure your loved one’s avoid difficulty and delay after you have passed.
Revocable Living Trusts are also a great way to provide for blended families. For example, Georgia law does not grant step-children the same inheritance rights as natural born children and adopted children. You can make sure your step-children receive their portion of an inheritance by creating a Revocable Living Trust and naming them as beneficiaries.
In addition, Revocable Living Trusts avoid the problems with owning real estate under Joint Tenancy with Rights of Survivorship (JTROS).
For example, what if John and Jane hadn’t created their Revocable Living Trust, and instead had just relied on JTROS?
In this case, upon Jane’s death, the Indian Hills real estate would go to her new husband. And upon his death, it would go to his adult daughter. Linda and her two brothers would have seen nothing.
As you can see, Revocable Living Trusts are lifesavers for blended families.
It is important to note that, because you still have control over the assets in a Revocable Trust, these assets are still vulnerable to estate taxes, creditors and lawsuit liability, and are included as assets in government benefit cut-off points. You can use other types of trusts to address these issues.
These are popular trusts for protecting assets from creditors. Unlike revocable trusts, in an Irrevocable Trust, you permanently release your interest in an asset, handing it over entirely to the trust.
Because you no longer own the asset, the terms, beneficiaries and assets of Irrevocable Trusts cannot be changed. But this also means the asset is safe from creditors and lawsuits.
In addition, because you relinquish control of the asset, it no longer contributes to the value of your estate, thereby potentially lowering estate taxes.
Likewise, Irrevocable Trusts can help you protect government benefits for a special needs child by avoiding disqualification, can help avoid Medicaid spend-down provisions, and can help avoid nursing home poverty.
Assets in an Irrevocable Trust avoid probate and are removed from personal income tax and gift exemptions.
Certain types of trusts are helpful when you want to name a guardian for minor children (under age 18) and protect the inheritance you plan to leave for minor children. Many parents believe that leaving a Will and naming a guardian in that Will allows the guardian to automatically use the inheritance to care for the child.
Unfortunately, this just isn’t so.
First, your Will must go through probate which as we discussed can take months to years.
Second, the Court will not always appoint the guardian you name in your Will. The Court has discretion to appoint a guardian in the minor’s best interest (but great consideration is given to who the parents want the guardian to be).
Once the Court appoints a guardian, the Court, not the guardian, will control the inheritance until the child reaches age 18. While the guardian will be able to use some of the inheritance, they will be heavily supervised by the Court.
Once the child reaches 18, the child will receive the inheritance in a lump sum (not necessarily the best idea if you want the inheritance to provide for the child years into the future).
Additionally, the process of the Court appointing a guardian is often expensive. All expenses are paid out of the inheritance. And because the Court seeks to treat everyone equally, it may be difficult to ensure that one child receives more than another to meet any special requirements.
A better option for providing an inheritance for a minor child is through a Testamentary Trust. These trusts allow you to name a trustee who will manage the inheritance instead of the Court. You can also designate at what age the child will receive the inheritance (instead of the default age 18). Many people feel that age 21, 25 or 30 would be safer.
However, the Testamentary Trust is not perfect. These trusts aren’t funded until the Will has been probated, and that takes time.
Also, if you happen to become injured and unable to handle your own affairs, the trust still won’t go into effect until the Will has been probated, potentially leaving your minor child without care.
Finally, because the Will must be probated, your affairs become public record, which also means everyone can see what your child is inheriting.
The best option for providing an inheritance for a minor child is through a Revocable Living Trust.
The Revocable Living Trust allows your guardian to obtain immediate access to the inheritance, instead of waiting on the Court. In addition, the Revocable Living Trust comes into existence as soon as it is signed – before you become incapacitated or pass away. This means your minor child will be cared for even if you become incapacitated.
A very popular trust these days, the Spendthrift Trust (Ga. Code Ann. § 53-12-80) is a clever tool used to control beneficiary spending. This trust is helpful to those with an adult child who may be financially irresponsible and / or possibly facing creditors.
One way to protect the inheritance of a “spendthrift” from their own spending habits and from creditors is to appoint a family member to control the release of the inheritance in small, annual distributions. However, you can imagine the potential for some serious family disputes. Most people elect to establish a Spendthrift Trust to avoid these problems, assigning an impartial third party to control the inheritance instead.
A Spendthrift Trust is basically an inheritance trust for which you hire a professional trustee to handle the distributions of the inheritance.
You transfer assets into the care of an individual or corporate trustee, who delivers regular distributions to the beneficiary of the trust. The beneficiary is unable to control the trust and does not have access to the remaining funds. Meanwhile, the trust continues to generate interest and dividends.
For example, say Tom wants to leave his 40-year-old daughter Grace a $3 million inheritance. Grace is an avid (but not so talented) poker player and self-proclaimed shopaholic. Using a Spendthrift Trust, Tom establishes terms so that Grace receives just $75,000 per year from the trust.
In addition, because Grace does not own the assets contained in the trust, she is unable to use the $3 million as collateral in other dealings. If Grace fails to pay off her extensive credit card bills, creditors would not be able to touch the trust. They would only have access to whatever is left of her $75,000 distribution.
Approximately 65% of American households include beloved pets, and it is not uncommon for a pet to outlive its owner. Most pet owners want a simple way to arrange for pet care after their death.
Because estate law views pets as “property,” we cannot name our pets as beneficiaries in a Will. So in the past, animal owners and estate planners would come up with creative ways to make sure pets had the care and support they needed after an owner’s death.
For example, some people would leave their pet and a sum of money to someone they trusted in their Will. The problem with doing this is, the beneficiary has no legal obligation to care for the pet.
But in 2010, the Georgia legislature enacted a law (Ga. Code Ann. § 53-12-28) that allows pet owners to create a trust for their animals, including companion animals, race horses, hunting dogs and therapy animals.
In setting up a Georgia Pet Trust, there are several important steps to consider.
First, ownership of the pet should be very clear since estate law still considers animals to be property. The ownership of the pet should be pre-determined.
Microchipping your pet with your name and address, keeping tags on your pet and other precautions can help prove ownership if a pet becomes lost. Providing photocopies of your trust to everyone involved can help ensure ownership of the pet is clear.
Second, your Pet Trust must name a “guardian” (the person or organization who will be taking care of your pet) and a “trustee” (the person or organization that will handle the trust’s finances). The guardian and trustee can be the same person or organization, but I don’t always recommend it.
Since the trustee oversees the guardian’s care of the pet, having a separate trustee can ensure the guardian is following your care instructions. You will also want to select a successor guardian and successor trustee should the original individuals be unable to perform their roles.
Third, your Pet Trust must be properly funded. Otherwise, the guardian may not have the proper incentive to care for your pet the way you wish.
Make sure to consider your pet’s age (they are more expensive with age), the type of pet (race horses require more care than the average dog), and any special care needs. You can specify every aspect of your pet’s care, including the brand of food it eats, how much food to feed, your chosen veterinarian and more.
And finally, you will need to name remainder beneficiaries. While the pet is the primary beneficiary of the trust, remainder beneficiaries will receive whatever is left over once the pet dies. Typically, owners will name a charity or animal hospital as a remainder beneficiary, but you could also name a family member.
Most Americans will spend at least some time in an assisted living facility, nursing home or receive some form of home health care. And this can get expensive. It costs an average of $65,000 per year to live in a Georgia nursing home – double that if you want to live in the home as a couple.
So most people use Georgia Medicaid to help pay for these services. In fact, around three out of four Georgia nursing home residents pay for their facility services using Medicaid. But you must be eligible to receive those benefits.
One requirement to qualify for Georgia Medicaid is that your annual income must be less than $2,250 per month and you must have less than $2,000 in assets. In Georgia, your home (valued at less than $560,000), personal belongings and one vehicle may be exempt from this resource limit, but many people still have more than $2,000 in assets after subtracting their home and vehicle.
Some couples end up having to sell their assets to qualify for their nursing home care. But you can avoid this need to “spend-down” assets by setting up a Medicaid Irrevocable Trust. These types of trusts protect your non-exempt assets while still allowing you to be eligible for Medicaid coverage of long-term care expenses.
While you could gift your non-exempt assets, its best to transfer your non-exempt assets into a Medicaid Irrevocable Trust and let your children inherit them instead. This helps them to avoid capital gains tax and you still get to keep some degree of control over your assets during your lifetime.
Many of our clients who work in industries susceptible to lawsuits want a way to shield their assets from potential liability. Since it is illegal to transfer assets to avoid creditor judgments, smart estate planners will protect their assets before a lawsuit ever happens.
We are all at risk of losing our assets to a lawsuit. If you come across hard times and default on loans, creditors will come after everything you own. If the neighbor is seriously injured on your Brookstone property, you might have to pay their lost wages and a lifetime of medical expenses. Many folks lose their hard-earned property to divorce.
But certain professions are at even higher risk for lawsuits. Business owners face EEOC lawsuits, workplace injury lawsuits, sexual harassment lawsuits, trademark infringement lawsuits, and breach of contract claims. Physicians and lawyers face malpractice lawsuits.
Persons involved in high-risk business ventures or who work in high-risk professions like the medical or legal fields should take steps to shield themselves from the liabilities that come with those fields.
Many states require or suggest that professionals such as doctors, lawyers, accountants, architects, dentists, land surveyors, veterinarians, even harbor pilots, become incorporated as a certain business entity. Rather than a sole proprietorship, it is safest to incorporate or function under a Limited Liability Company (LLC) or Professional Limited Liability Company (PLLC).
You can also use Asset Protection Trusts to protect your assets from lawsuits and liability. By transferring assets into an irrevocable trust, you are no longer in control of those assets. They are no longer part of your estate and therefore are not accessible to judgment creditors.
Currently, several states (around 15) provide protection for self-settled Domestic Asset Protection Trusts (DAPT). The DAPT is a trust created within the United States (hence “domestic”) for asset protection. Unfortunately, Georgia does not currently protect DAPTs. But an experienced Marietta estate planning lawyer can help you develop other options for setting up a successful Asset Protection Trust.
Overseas Asset Protection Trusts are another way to use the law to protect your assets so that your children and grandchildren can benefit from your hard work. You may also want to consider a Foreign Asset Protection Trust – placing your assets in a jurisdiction that the U.S. courts cannot enforce judgment against.
In addition, any revocable trusts you own will become irrevocable upon your death, protecting them from judgment creditors and liability.
Setting up a Marietta Asset Protection Trust can be a complex process that is best accomplished with the aid of an expert. If you are a business owner, physician, lawyer or other high-risk industry professional, we recommend that you meet with an experienced Marietta estate planning lawyer who can evaluate your assets and determine the best strategy for protecting your estate from potential lawsuits and liability.
Do you have an over-controlling daughter-in-law? Maybe a not-quite-perfect son-in-law? Believe me, you aren’t alone. Many folks come into The Farrell Law Firm concerned about making their inheritance divorce proof. How can you make sure that the family business, a family heirloom or money stays within the family?
Prenuptial agreements can help to protect your child’s inheritance from their spouse by listing the inheritance as outside of the martial property and describing how the inheritance is to be divided upon divorce.
However, a Children’s Inheritance Trust is often a more effective option for those seeking to protect their child’s inheritance from divorce or creditors. These trusts can reduce or even eliminate estate taxes, last for the beneficiary’s entire lifetime, and pass to the beneficiary’s children upon their death.
A Children’s Inheritance Trust segregates the assets meant for your child from those that your child and their spouse have accumulated (marital property), so the inheritance is not subject to division in divorce. This type of trust can be either revocable or irrevocable.
In a revocable Children’s Inheritance Trust, you control the assets during your lifetime, but these assets are still vulnerable to creditors of your own. In an Irrevocable Children’s Inheritance Trust, you relinquish control of the assets, but they are safe from any creditors or judgments against you, the grantor.
Be sure to select an independent trustee, such as a trust company or bank, for your Children’s Inheritance Trust, as it can be difficult for your child to have to stand up to their spouse in financial dealings. In disputes, friends or family are more likely to give into a family member’s demands for money rather than protect the inheritance.
As opposed to a Children’s Inheritance Trust that is meant for an adult child, a Minor’s Trust sets aside an inheritance for a beneficiary under the age of 18.
Minor’s Trusts effectively protect the inheritance by assigning a trustee who will have some discretion in distributing the funds for the health, education, maintenance and support (HEMS) of the minor. In the event of your death, the minor only receives distributions and cannot access the entire funds until he or she reaches a designated age (often 18, 21 or 25). When the minor reaches that designated age, the trustee transfers the property and any generated income to the beneficiary in full.
A 2503(c) Minor’s Trust is designed to avoid gift taxes. Gifts valued at $14,000 or less (per year per recipient) are generally exempt from federal gift taxes, as long as the gift is received. But Minor’s Trusts don’t deliver the asset to the minor outright, so are not exempt from gift taxes.
However, IRS Code §2053(c) offers an exception to this rule. It allows the $14,000 exemption to apply to Minor’s Trust assets as long as:
There are adaptations to Minor’s Trusts that allow you to avoid gift taxes while keeping the inheritance from the beneficiary until a later age than 21. Consult with an experienced Marietta estate planning attorney to learn more about these Minor’s Trust modifications.
In addition, the grantor of a Minor’s Trust can exclude those assets from their estate for purposes of estate taxes (as long as the grantor is not the trustee). And there are no restrictions on the assets you can transfer to a 2053(c) Minor’s Trust (as opposed to the restrictions on Uniform Transfers to Minors (UTMA) accounts).
Many people come into our office with concerns about a special needs child. If you need help supplementing the needs of that person, or if that person receives government benefits for their special needs, we will set up what we call a Supplemental Needs Trust.
A Supplemental Needs Trust is designed to provide benefits and protect assets for individuals with physical or mental disabilities, without critically separating or affecting their qualifications for government health care benefits that they receive, including long-term nursing care Medicaid benefits.
You can also use a Supplemental Needs Trust to receive a settlement, gift or inheritance on behalf of a special needs person in a way that safeguards their eligibility for government benefits.
In Supplemental Needs Trusts, the trustee holds legal title to the assets for the beneficiary. A Supplemental Needs Trust remains valid as long as the trust meets several requirements (42 US Code §1396p(d)(4)(A)):
Supplemental Needs Trusts only allow the trustee to pay for needs that the government will not cover. They aren’t designed to provide the beneficiary with support and maintenance and don’t offer regular fund distributions.
In most cases, Medicaid can disallow asset transfers any time they find that the transfers are made specifically to qualify for Medicaid. But a disabled beneficiary can supply their own assets for a Supplemental Needs Trust (first-party, self-settled).
For first party, self-settled Supplemental Needs Trusts, the Medicaid payback provision is required. This provision says that any assets in a Supplemental Needs Trust are subject to a Medicaid lien upon the beneficiary’s death.
The provision does not apply to Supplemental Needs Trusts established by individuals other than the beneficiary (third-party trusts).
What about special needs individuals who don’t receive any government assistance?
For these cases, we also offer what we call Special Needs Trusts. As opposed to Supplemental Needs Trusts, Special Needs Trusts are designed to accommodate the specific needs of a person regardless of any type of government assistance they might receive.
In a Special Needs Trust, you designate a trustee to take care of the beneficiary in the instance that you are not able. These trusts are valuable for those who have concerns that the beneficiary may not be capable to handle themselves financially.
Special Needs Trusts can protect the inheritance or assets of someone with special needs. In addition, these trusts can also help a special needs individual maintain their eligibility for government benefits.
Like Supplemental Needs Trusts, Special Needs Trusts include both first-party, self-settled trusts and traditional third-party trusts and may require Medicaid payback provisions in first-party trusts.
As you can see, a wide variety of trusts and combinations of trusts are available to meet every individual’s specific needs. If you are interested in a type of trust that we didn’t mention here, we cover more trusts and modifications in our free ebook – Advanced Georgia Estate Planning.
Your best bet for deciding which trusts can maximize your estate plan is to sit down with an experienced Marietta estate planning attorney, discuss your goals, and design a plan customized to fit your life.
Our Farrell Law Firm estate planning attorney and staff can assist with creating a wide range of trusts designed uniquely to serve your needs. The Farrell Law Firm represents clients in Marietta, East Cobb, Kennesaw, Smyrna, Atlanta, Roswell, Rome, Athens, Columbus, Macon, and across the state of Georgia, Tennessee, and Texas.
Questions About Georgia Trusts? Contact Lawyer John Farrell at (678) 809-4922 or Connect Online.