Over the last few weeks, we have brought informative content on how to create an Estate Plan, Estate Planning tips during this pandemic, and Estate Planning mistakes to avoid. Beginning with our article: How to Create an Estate Plan, you will find the different elements that make up a good Estate Plan. For many creating an estate plan that includes a trust is the best way to accomplish their goals during their lifetime and after transitioning. However, many people hesitate to consider a trust, because they do not understand exactly what it is and how it works. Today, we are going more in-depth on trusts, the various types of trusts, and why it is beneficial for you or a loved one to include in their long-term care, Estate planning, or retirement plans, etc.
So, what is a trust? A trust is a document in which someone (the trustee) manages and distributes assets on behalf of the individual who created it. The trustee is a fiduciary, as such, the trustee must act with reasonable care in administering the trust and selecting trust investments; avoiding any conflict of interest or self-dealing in holding, purchasing and selling trust assets. To establish a trust, the individual (called the grantor or settlor) signs a legal document that creates the trust and specifies the terms under which it will operate. In the document, the grantor names a trustee to manage the trust assets and distribute the trust property to the beneficiary (or beneficiaries) named in the trust document.
Trusts can be characterized in several ways. A living trust is one that takes effect during the grantor’s lifetime. A trust can also be either revocable or irrevocable. A revocable trust can be changed or terminated by the grantor at any time. A revocable living trust is a “special” type of trust that is part of many estate plans. In most living trusts, the grantor is also the trustee and beneficiary of the trust during his or her lifetime. If the grantor is incapacitated, the trust becomes irrevocable. An irrevocable trust cannot be altered or terminated by the grantor after it is established, except by the terms of the trust or by the courts. A named successor trustee manages the properties and assets according to the terms of the trust document. Typically, the successor trustee ultimately distributes the assets to the named beneficiaries following the grantor’s death.
Including a trust in an Estate Plan provides a number of benefits. Here are a few benefits of why you might need a trust:
- A trust enables the grantor to control how property and assets are distributed to beneficiaries after the grantor’s death. That brief contrasts with the lack of control over property distributed through a will, which goes immediately and entirely to named beneficiaries.
- A trust can control who will receive distributions as well as when those will occur on what terms. This can be especially important, for example, for surviving spouses and families with children from multiple marriages.
- Depending on where you live or where your property is located, the process where the state settles your affairs, called probate can be expensive and time consuming and all the records will be public. In contrast, if you have a trust that you control (revocable living trust), the trust will generally avoid probate if funded properly.
- Trusts may provide tax benefits. Trusts can either be revocable or irrevocable. A revocable trust gives you the option to make changes to it after it’s signed, but depending on its terms, it may or may not lead to tax advantages further down the line. However, with an irrevocable trust, you cannot usually change after the agreement is signed – setting up this kind of trust may bring about transfer tax benefits because you have transferred assets out of your estate.
- A properly constructed trust can protect your legacy from your heirs’ creditors or from the irresponsible ways of the beneficiaries themselves.
- You can set up a tax-efficient long-range plan to donate your assets the way that you want to go through charitable trusts.
- Wills only go into effect when a person passes away, but a revocable trust established during your lifetime can also help your family if you become ill or unable to manage your assets. If that happens, your trustee can make distributions on your behalf, pay bills, and even file tax returns for you.
Life can be unpredictable, but creating a trust allows you to adapt your estate plans appropriately. When you create a trust, you set up a plan to take care of the people you love after you have lacked the capacity to assist them. The Law Offices of Marjory Cajoux, we provide a full range of services to estate planning, including trusts. Contact us today or use our contact form to talk with our experienced Estate Planning attorneys.