When thinking about protecting your family's financial future, a Kentucky trust lawyer can help you explore options that go beyond a simple will. Trusts offer flexibility, control, and protection that make them valuable tools for families throughout Radcliff and Central Kentucky. At Skeeters, Bennett, Wilson & Humphrey, our experienced attorneys work with clients to determine whether a trust fits their estate planning goals.
Many people assume trusts are only for the wealthy, but that's not the case. Families with minor children, individuals with special needs relatives, and anyone who wants to avoid the probate process can benefit from establishing a trust. Understanding the different types of trusts available under Kentucky law helps you make informed decisions about your estate plan.
What Is a Trust?
A trust is a legal arrangement where one person (the grantor) transfers property to another person or entity (the trustee) to hold and manage for the benefit of designated individuals (the beneficiaries). Think of it as creating a container for your assets with specific instructions about how those assets should be handled.
Trusts can hold various types of property, including real estate, bank accounts, investments, business interests, and personal property. Once assets are properly transferred into a trust, the trustee manages them according to the trust document's terms. This can happen during your lifetime, after your death, or both, depending on the type of trust you create.
Types of Trusts Available in Kentucky
Kentucky law recognizes several distinct types of trusts, each serving different purposes and offering unique benefits.
Revocable Living Trusts
A revocable living trust is one you create during your lifetime that you can change or cancel at any time. Most people who establish this type of trust name themselves as the initial trustee, maintaining complete control over the assets while designating a successor trustee who takes over if they become incapacitated or pass away.
One of the biggest advantages is avoiding probate for assets titled in the trust; those assets pass directly to beneficiaries without court involvement, saving time and maintaining privacy. Because you retain control over revocable living trust assets during your lifetime, these trusts offer no protection from your creditors.
Testamentary Trusts
Unlike a revocable living trust, a testamentary trust doesn't exist until after you die. You create this type of trust through your will, and it only comes into being when the will goes through probate. Testamentary trusts are useful for parents of young children who want to control when and how their children receive assets rather than having everything distributed at age 18 through guardianship accounts.
This approach gives parents the ability to specify distribution ages—perhaps one-third at 25, one-third at 30, and the remainder at 35—or to authorize the trustee to use discretion in providing funds for education, starting a business, or other purposes.
Irrevocable Trusts
When you create an irrevocable trust, you typically can't change or cancel it without the beneficiaries' consent. This permanence might sound unappealing, but it comes with potential benefits for asset protection and planning for long-term care. Irrevocable trusts may provide creditor protection depending on how they're structured and who can benefit.
For families concerned about nursing home costs, irrevocable trusts can be valuable planning tools when established well in advance. Kentucky's Medicaid program includes a 60-month lookback period, so transfers must be completed years before needing care. The tradeoff is loss of control, which is why careful planning with a Kentucky trust lawyer is so important.
Special Needs Trusts
Special needs trusts address how to provide for a family member with disabilities without disqualifying them from government benefits like Supplemental Security Income (SSI) or Medicaid. Government benefits programs have strict asset and income limits, so direct inheritances can disqualify someone from crucial benefits.
The trustee can use funds for things that improve quality of life but aren't covered by government benefits. Because the beneficiary doesn't own or control these assets, government benefits continue uninterrupted.
Charitable Trusts
Charitable trusts allow you to support causes you care about while potentially receiving tax benefits. A charitable remainder trust provides income to you or your beneficiaries for a period of time, with remaining assets going to charity when the trust ends.
A charitable lead trust works in reverse. The charity receives income for a period of time, then the remaining assets pass to your beneficiaries. Kentucky recognizes both types of charitable trusts, and they can be valuable for families who want to balance philanthropic goals with providing for loved ones.
Why You Might Want to Establish a Trust in Kentucky
Trusts serve multiple purposes in estate planning, from avoiding the time and expense of probate to protecting vulnerable beneficiaries.
Avoiding Probate
A living trust only avoids probate for assets actually titled in the trust. Probate in Kentucky involves filing a petition with the district court, having the clerk publish notice of the fiduciary appointment under KRS 424.340, inventorying assets, paying debts and taxes, and distributing what remains to beneficiaries. All probate records are public, meaning anyone can review what you owned and who inherited it.
Assets properly titled in a revocable living trust avoid probate for those specific assets. Your successor trustee can distribute trust-held property according to your instructions without court involvement.
Protecting Minor Children
Kentucky law requires court oversight when minors inherit property. Without a trust, assets left to children under 18 are placed in guardianship accounts that require annual court accountings and approval for expenditures. Through a trust, you can specify that children receive assets at whatever age you choose.
Maintaining Privacy
Probate proceedings are public record in Kentucky. For many families, this lack of privacy is uncomfortable. Trusts are private documents that remain confidential unless someone files a lawsuit challenging the trust.
Planning for Incapacity
Most people focus on estate planning for after they die, but planning for potential incapacity is equally important. A revocable living trust addresses this issue by naming a successor trustee who automatically has authority to manage trust assets if you become incapacitated.
Addressing Kentucky Inheritance Tax
While Kentucky has no state estate tax, the state does impose an inheritance tax that depends on the beneficiary's relationship to you. Trust planning may offer opportunities to reduce inheritance tax exposure. Consultation with a Kentucky trust lawyer helps you understand which planning approaches apply to your situation and beneficiaries.
Providing Structured Asset Protection
Revocable living trusts offer no protection from your creditors during your lifetime because you retain full control over the assets. Irrevocable trusts may provide creditor protection, but this is a fact-specific area under Kentucky law. Asset protection planning must be done carefully, well in advance of any creditor issues, and in full compliance with Kentucky law.
Caring for Loved Ones With Special Needs
Special needs trusts protect government benefits for family members with disabilities. Without proper planning, an inheritance could disqualify someone from SSI, Medicaid, subsidized housing, and other crucial programs that provide access to healthcare and support services families couldn't afford privately.
Important Considerations When Creating a Trust
Creating an effective trust involves more than just drafting a document. Several practical considerations determine whether your trust accomplishes your goals, from choosing the right trustee to understanding tax implications.
Choosing the Right Trustee
Your trustee makes decisions about managing and distributing trust assets, which requires trustworthiness, financial judgment, and willingness to serve. Common choices include adult children, siblings, close friends, or professional trustees like banks or trust companies. Some families choose co-trustees to combine family knowledge with professional experience.
Funding Your Trust
Creating a trust document accomplishes nothing if you don't transfer assets into the trust. This process, called "funding," involves changing titles and beneficiary designations. However, not all assets should be retitled to the trust, and some require special handling. Funding is an ongoing process. Every time you acquire new assets, consider whether they should be titled in the trust's name.
Understanding Trustee Duties
Trustees have significant legal responsibilities. This includes duties of loyalty, prudence, and impartiality. Trustees must keep accurate records, provide accountings to beneficiaries, and file tax returns for the trust. Before agreeing to serve as trustee, people should understand the responsibilities they're committing to and whether they can fulfill those duties properly.
Reviewing Tax Implications
Trusts don't automatically reduce taxes. In fact, they create additional tax compliance obligations. These considerations require working with attorneys who understand both Kentucky trust law and tax planning strategies to structure trusts that accomplish your goals while managing tax obligations appropriately.
Working With a Kentucky Trust Lawyer
Trusts are powerful tools, but they must be properly designed and implemented to work effectively. Generic forms rarely address Kentucky-specific legal requirements or your family's unique needs. Small mistakes in trust documents can create significant problems.
The attorneys at Skeeters, Bennett, Wilson & Humphrey have served Radcliff and Central Kentucky families for over 50 years. We take time to understand your goals, explain your options in plain language, and create customized trust documents that accomplish what you want.
Estate planning isn't just for the elderly or wealthy. Young parents need to protect their children. Families with special needs members need to preserve benefits. Business owners need to plan for incapacity. People at any age or income level can benefit from proper planning. If you're considering a trust for your estate plan, we invite you to contact our office.
Call 270-351-4404 or fill out our online contact form to schedule a consultation. During this meeting, we'll discuss your situation, answer your questions, and explain how trusts might fit into your overall estate plan. Let our experience and knowledge guide you toward an estate plan that provides the protection and peace of mind you deserve.