Types of Trusts in Colorado
Planning for the future? Learn about different types of trusts in Colorado with Duncan Legal, PC. Our skilled attorney can guide you through. Contact us today.
What Are the Types of Trusts in Colorado?
A trust is a common legal arrangement whereby a person called the settlor transfers ownership of their assets to a different person or entity (the trustee). The trustee does not become the nominal owner of the assets but administers them to benefit those selected by the trustee.
Trusts offer many advantages and can be used to avoid estate and inheritance taxes and the probate process. They also help to avoid inheritance issues since they can be used to leave instructions about asset distribution upon a person’s death.
These and several other factors make trusts a popular estate planning tool in Colorado and across the U.S.
There are different types of trusts in Colorado. If you’d like to create one as part of your estate plan, it may be difficult to determine which one best suits your goals because they serve different purposes.
Below, we discuss some of the common trusts in Colorado to help you understand your options before you reach a final decision.
Living Trusts
In this type of trust, the settlor transfers ownership of their assets to the trustee during their lifetime and leaves instructions about what becomes of the trust assets after their death.
This trust offers many benefits and can be used to avoid probate after a person’s death.
A living trust may be revocable or irrevocable depending on the settlor’s goals and wishes. However, both options have different consequences on the settlor’s powers and the trust administration process, as shown below.
Revocable Living Trusts
A Colorado Revocable Trust is one that is easily modified or terminated by the settlor.
Essentially, when you create this type of trust, you retain a significant level of control over the trust assets, how they are managed, and the trustee’s powers. You can also end or modify the trust whenever you want during your lifetime.
However, revocable trusts cannot shield your assets from creditors or other third-party claimants. If asset protection is one of your estate planning goals, a revocable trust may be inappropriate. You might want to consider creating an irrevocable trust instead.
Irrevocable Trusts
This trust is irrevocable because it cannot be modified or terminated without a court order and the approval of all the beneficiaries, which are difficult to get.
In an irrevocable trust, you give total ownership and control of your assets to the trustee. The trustee will administer the assets for the benefit of the beneficiaries, subject to the terms you set in the trust document.
Even though you lose control of your assets, this trust offers several benefits. It can be used as a solid asset protection strategy. Because the assets are no longer in your name and within your control, they cannot be used to offset your financial liabilities unless the law specifically provides otherwise. But you may still be able to use the assets for your benefit. There are also certain income tax advantages you may enjoy when you create an irrevocable living trust.
However, the decision to make an irrevocable trust is not one that should be taken lightly because of the ownership implications. If you’re considering creating one, it might be best to discuss your plans with an estate planning attorney so they can advise you on the pros and cons before you proceed.
Testamentary Trusts
A testamentary trust is created under a will and does not take effect until the creator (testator) dies. Under Colorado law, the operative terms of the testamentary trust do not need to be contained in the will. The trust is valid as long as it is identified in the will.
Within the will, the testator can leave instructions on how the trust should be established, what assets should be used to find the trust, and who the trustee and beneficiaries are. But unlike a living trust, the actual trust instrument would be made by the trustee following the will’s blueprint.
Testamentary trusts are commonly created to secure the welfare of a testator’s dependents or loved ones. For example, you can set up a testamentary trust to ensure the future of your minor children and appoint a guardian to look after them in your absence until they come of age. It can also be used to ensure that your beneficiaries do not spend their entire inheritance at once. The assets under the trust will be distributed to them in little bits instead of a lump sum.
A testamentary trust has to meet certain statutory requirements to be valid. If you’re considering creating one, contact an estate planning lawyer for help. They can explain the legal requirements and help you create a valid and enforceable testamentary trust.
Other Types of Trusts in Colorado
There are other types of trusts that can be made for specific purposes. These trusts may be made as living or testamentary trusts depending on the settlor’s wishes. Some of them include the following:
Special Needs Trusts
This kind of trust helps you provide care for a person with special needs without exempting them from government assistance programs such as Medicaid.
A Special Needs Trust in Colorado has to meet certain legal requirements under federal and state law. If you’d like to set one up, it may be best to consult an estate planning attorney to ensure the trust is properly drafted and can fulfill its purpose.
Charitable Trusts
A charitable trust is made to support causes or programs that aim to provide relief from poverty or advance education, religion, and health. You can donate to your favorite charities and causes by setting up this type of trust.
Trusts for the Care of Animals
Colorado law recognizes trusts that are created to ensure the care of animals. If you’re worried about what would become of your beloved pets when you’re no longer around, you can set up this type of trust to ensure their well-being in your absence.
Choosing the Right Trust for Your Estate Planning Goals
There are other types of trusts that are acceptable under Colorado law, which have not been mentioned here. But the specific trust you’ll need depends on your estate planning goals and your specific circumstances. You may also need more than one type of trust to cover all the bases.
Choosing the right trust may be difficult for you to handle since you do not have in-depth legal knowledge of how each trust works.
At Duncan Legal P.C., our experienced trust and estate planning attorney can help you identify the type of trust that best suits your purposes and goals and prepare the appropriate trust documents on your behalf.
Our firm has served families and individuals in Centennial, Colorado, with similar estate planning concerns for many years. You can rely on us to help you too, as you work to manage your assets and ensure the well-being of your loved ones.
Call us today to get started.