Types of Trusts in Tennessee: Which is Best Suited for You?
Everyone wants to ensure their wishes will be honored and their loved ones will be cared for. Although estate planning can be an overwhelming experience, ensuring your family’s security doesn’t have to be.
At Foust & Foust, PLLC, we’re dedicated to helping individuals and families across Tennessee protect their assets and plan for the future. One of the most powerful tools you can tap into in estate planning is the creation of a trust.
In this article, we’ll walk you through the types of trusts available in Tennessee, their benefits, and how each might be tailored toward your specific goals. By the end, you'll better understand which trust might work best for your situation.
What Is a Trust?
A trust is a legal arrangement where a person – the grantor – places assets under the care of a trustee, who manages them for the benefit of another person or group, called the beneficiaries. A trust helps you control how your assets are distributed and used, even after you're gone.
Why Use a Trust?
There are several advantages to incorporating a trust into your estate plan, especially here in Tennessee:
- Avoiding probate: Assets held in a trust can pass to your beneficiaries without going through probate court, saving time and reducing legal costs.
- Protecting assets: Certain types of trusts can safeguard your wealth from creditors or lawsuits.
- Providing for loved ones with special needs: Trusts can be designed to ensure ongoing support without jeopardizing eligibility for government assistance.
- Minimizing estate taxes: While Tennessee does not have an estate tax, federal estate taxes may still apply, and trusts can help reduce that burden.
- Maintaining privacy: Since trusts don’t go through probate, your financial affairs can remain private.
Types of Trusts in Tennessee
Tennessee offers various types of trusts, each with its own unique advantages. Let’s explore the most common ones:
Revocable Trusts
A revocable trust, sometimes called a living trust, lets you manage your assets during your lifetime while retaining control. You can make changes or dissolve the trust at any time. This makes revocable trusts attractive to those who want to plan ahead but maintain control.
- Advantages: You can modify the trust at any time, and it helps avoid probate.
- Disadvantages: Since the assets are still under your control, they aren't protected from creditors.
Example: Imagine you become incapacitated. A revocable trust allows someone you trust to manage your assets without needing court intervention.
Irrevocable Trusts
Unlike a revocable trust, an irrevocable trust cannot be changed once it's created. While that might seem like a downside, this type of trust offers strong asset protection.
- Advantages: Assets in an irrevocable trust are shielded from creditors and lawsuits. They may also reduce estate taxes.
- Disadvantages: You give up control over the assets placed in the trust.
Common irrevocable trusts in Tennessee include:
- Irrevocable gift trusts: Used to pass on gifts to beneficiaries, often with tax advantages.
- Irrevocable life insurance trusts: Removes life insurance proceeds from your taxable estate.
- Qualified personal residence trusts (QPRTs): Allow you to transfer your home while continuing to live there for a set period.
- Charitable remainder trusts: Allows you to support a charity while still receiving an income stream.
Tennessee Investment Services Trust (TIST)
Unique to Tennessee, the Tennessee Investment Services Trust (TIST) is a powerful asset protection tool. This self-settled trust lets you transfer assets into the trust while still benefiting from them. After two years, creditors are barred from accessing those assets.
- Benefits: Strong asset protection while allowing you to benefit from the trust’s assets.
- Requirements: The trust must have at least one Tennessee-based trustee.
This trust is ideal if you want to safeguard your wealth from future claims while still maintaining access to it.
Special Needs Trusts
A special needs trust can provide for a loved one with disabilities without affecting their eligibility for government assistance programs, such as Medicaid. This type of trust is designed to ensure their financial security without compromising their access to vital services.
- Tennessee-specific benefits: The state’s laws allow special needs trusts to be carefully structured to comply with federal and state regulations, offering long-term protection for disabled beneficiaries.
Charitable Trusts
Charitable trusts allow you to support causes you care about while enjoying potential tax benefits. In Tennessee, charitable giving through trusts is encouraged, and the state has specific laws that make a charitable trust an attractive option for those wanting to leave a legacy.
Testamentary Trusts
Unlike the other trusts we've discussed, a testamentary trust is created through your will and only takes effect after your death. These are often used to manage assets for minor children or to ensure property is handled according to your wishes.
Types of testamentary trusts include:
- Marital trusts: To benefit a surviving spouse.
- Credit shelter trusts: Helps minimize estate taxes for married couples.
Choosing the Right Trust
There’s no one-size-fits-all trust. The best choice depends on your goals and your family’s unique situation. Whether you're looking to protect assets, provide for loved ones with special needs, or support a charitable cause, the right trust is a valuable part of your estate plan.
At Foust & Foust, PLLC, we take the time to understand your needs and help you choose the best trust for your situation. We’re here to guide you through the process so you can feel confident that your family is taken care of.
How We Can Help?
Trusts offer powerful tools to protect your assets, provide for your loved ones, and achieve your estate planning goals. From revocable trusts that give you flexibility to irrevocable trusts that offer strong asset protection, each type serves a different purpose. The right trust can make all the difference in ensuring your wishes are followed and your legacy is preserved. Ready to learn more? Contact Foust & Foust, PLLC today to schedule a consultation, and let’s start planning for your family’s future.