What is a Trust?
A trust is a legal way to hold and protect your assets for the future. A trust includes three parties. It is created when a person (grantor) gives property to another person (trustee) to hold for the benefit of a third person (beneficiary).
In a trust, you decide what property you want to give to which beneficiary, what real property and assets you want to give to which beneficiaries, and when they will get their share of the trust. For example, if you have minor children, many couples do not want them to have their trust share all at once immediately upon the couple’s passing. One method is children get half of their share upon their 25th birthday, and can get all of their share upon their 30th birthday. However, they can get access to their share prior to these birthdays for educational purposes only; or they can access all or part of their trust share for “dire and serious reasons” such as medical bills.
Uses of a Trust
There are many difference uses of a trust. Trusts can be used to manage a person’s assets during life or after death, to reduce a tax burden on an individual and provide a way for settlors to benefit during their lifetime as well.
Trusts are not subject to probate. In general, probate can be a slow and time consuming process. Because trusts are not subject to probate they can generally save you time and money.
Trusts safeguard the decedent’s wishes. Using a trust can prevent the need for guardianship. For example, if the grantor loses his or her mental capacity then the decisions could already have been made via a trust and thus eliminate the need for a guardian.
Trusts allow for tax savings. Large estates subject to estate taxes, skipping and transfer taxes can save money by transferring assets from one trust to another, instead of directly transferring assets to heirs.
Trusts provide asset protection. A grantor can place certain restrictions on a beneficiaries receipt of assets. This can be useful when a beneficiary is a minor or has mental or health issues.
Different types of Trusts?
There are several types of trusts, each with its own pros and cons. The main types of trusts are living, testamentary, revocable, and irrevocable.
A living trust is made by the grantor during his or her lifetime, with assets or property intended for the grantor’s use during their lifetime. This allows the grantor to benefit from the trust while alive, but passes the assets and property on to a beneficiary upon their death.
Testamentary trust is an agreement made for the benefit of a beneficiary once the trustor has died, and details how the assets must be awarded after their death. This type of trust is often instituted by an executor, who will manage the trust for the decedents after their will and testament has been created.
Revocable trust is a trust that is able to be changed, terminated or otherwise altered during the grantor’s lifetime by the grantor themselves. It is often set up to transfer assets outside of probate. In this case, all three parts of the trust (grantor, trustee and beneficiairy) are often the same person who can manage their own assets, but will be given over to a successor trustee and other beneficiaries upon the grantor’s death.
Irrevocable Trust is one that the grantor cannot change or alter during his or her lifetime or that cannot be revoked after his or her death. This type of trust contains assets that cannot be moved back into the possession of the grantor.
Contact our office to find out if a trust is necessary and which trust would be best for your specific situation.