Why are Trusts Becoming Increasingly Popular?
Instead of distributing assets through a Last Will and Testament, individuals and families are increasingly using revocable living trusts. These trusts express how they would like their assets to be delegated to their loved ones after their passing, like a will. So what’s the difference and is it right for you?
Defined – Trusts in General
A trust is a legal arrangement where an individual moves assets into a separate entity. A trust is managed by a person (called a “trustee.”) The trustee is responsible for distributing the assets according to the rules set, for the benefit of the chosen beneficiaries. There are an infinite amount of types of trusts which are created for various different benefits. We discuss the most popular types below.
Well-Written Trusts Avoid Probate. Wills Almost Guarantee Probate
Many families are choosing trust-based estate plans. These plans have a much better chance of avoiding probate court proceedings compared to will-based estate plans. However, we do not recommend writing your own trust, as these documents are complicated and must comply with state and federal law. Additionally, to avoid probate, all “probate property” must be properly accounted for. These aspects are such that a trained estate planning attorney can help you with.
Probate Defined
Probate is the court process which oversees the distribution of a person’s assets after their passing. (This person is referred to as the “decedent.”) Probate court proceedings involve court hearings to interpret and validate the decedent’s will. Probate proceedings take approximately 8-9 months or even years. As a former litigation attorney, I know that involving the Court in family matters often gets ugly. This can occur even when family members formerly got along perfectly.
Key Types of Trusts and Who They Are Best For
Accordingly, many families and individuals opt for trusts for the following reasons. We discuss the most common types of trusts for Connecticut families below. We also created a chart for your easy reference to begin to determine which type of trust is best for you and your family’s needs. There is no single trust that works for every family. The right trust depends on what you own and who you want to protect. It also depends on what concerns you most, whether that is privacy, long-term care, taxes, or safeguarding assets for loved ones. Below is a practical overview of the most common types of trusts we work with.
Revocable Living Trust
A revocable living trust is the most common and flexible type of trust for Connecticut families. It allows you to move assets into a trust while still maintaining control during your lifetime. Many clients choose this option because it feels familiar. You remain in charge, and nothing is locked in permanently.
With a revocable living trust, you can serve as your own trustee, which means you continue managing and using your assets as you normally would. The trust can be changed, amended, or revoked at any time while you are alive and have capacity. If life changes, the trust can change with you.
One important feature of a revocable living trust is how it functions during incapacity. The trust is effective as soon as it is signed. It can include instructions for managing your finances if you become unable to handle them yourself. A successor or disability trustee can step in to pay bills. They manage assets based on the guidance you set in advance.
After your passing, the trustee distributes assets held in a properly funded revocable living trust. This process occurs rather than going through the court. This often reduces delay and provides a greater level of privacy for your family.
A revocable living trust is best for individuals and families who want flexibility, continuity, and a clear plan both during life and after passing away. It is important to understand that because you retain control, assets in a revocable trust are generally still part of your estate for tax and creditor purposes.
Irrevocable Trust
An irrevocable trust works very differently. Once it is created and funded, it generally cannot be changed or revoked. Assets placed into an irrevocable trust are no longer considered yours in a legal sense. That loss of control is also what creates its power.
Because the assets are removed from your estate, an irrevocable trust can reduce estate tax exposure and provide meaningful asset protection when structured properly. In certain situations, irrevocable trusts are also used in long-term care and Medicaid planning, subject to the applicable lookback rules in effect at the time of application.
Irrevocable trusts are often used when protecting assets is a higher priority than flexibility. They can shield assets from future creditors, lawsuits, or long-term care costs, depending on the design of the trust and timing of transfers.
This type of trust is best for individuals with significant assets, those concerned about future care costs, or families looking to preserve wealth for the next generation. Because the consequences are long-term, irrevocable trusts should always be created with careful legal guidance.
Special Needs Trust
A special needs trust is designed to provide support for a loved one with disabilities without jeopardizing eligibility for government benefits such as Medicaid or Supplemental Security Income. These trusts allow assets to be used for the individual’s quality of life while preserving access to essential public assistance.
Funds in a special needs trust are managed by a trustee and used to supplement, not replace, government benefits. This can include expenses related to education, therapy, recreation, or other needs not covered by benefits programs. Special needs trusts are often created by parents or family members who want to ensure lifelong care and stability for a child or dependent.
This type of trust is best for families who want to protect a vulnerable loved one while maintaining access to critical benefits and support systems.
Charitable Trust
Charitable trusts are used by individuals who want to support charitable or religious organizations while also addressing personal or family financial goals. These trusts can be structured in different ways, depending on whether income is intended to go first to family members or to the charity.
Some charitable trusts provide an income stream to the trust creator or family members for a period of time, with the remaining assets later passing to charity. Others do the reverse, providing payments to charity first and returning assets to family later.
Charitable trusts can offer income tax and estate tax advantages, but they also involve trade-offs. Assets placed into these trusts are generally no longer available for direct inheritance by family members.
Charitable trusts are best for individuals who want their estate plan to reflect philanthropic values while balancing tax considerations and family support. Because the tax rules are complex, these trusts require careful planning with an estate attorney proficient in tax law, or with an estate attorney working alongside a CPA.
Asset Protection Trust
Asset protection trusts are designed to safeguard wealth from future legal claims, creditors, or liabilities. These trusts are often considered by professionals in higher-risk fields, business owners, or individuals concerned about lawsuits or financial exposure.
When structured and funded properly, certain asset protection trusts can create legal barriers between assets and potential claims. The level of protection depends on the type of trust, timing, and applicable state law.
Asset protection trusts are best for individuals who want to proactively protect specific assets rather than react after a problem arises. These trusts require thoughtful planning and realistic expectations, as laws and protections vary.
Choosing the Right Trust
Trusts are powerful tools, but they are not interchangeable. The right trust depends on your goals, your family, and your long-term concerns. Working with a Connecticut estate planning attorney allows you to understand not just what each trust does, but how it works in real life. The goal is not complexity for its own sake, but clarity, protection, and peace of mind for you and your loved ones.
