A trust is an agreement that outlines how property will be managed and held for a beneficiary such as person or entity. There are many types of trusts that serve different purposes, so seeking the counsel of experienced Trusts attorneys is essential to help you decide which type of trust will best fit your needs.
The Goal of a Trust
There are various factors that can help you decide whether to create a trust as part of your estate plan. Some trusts can help you more effectively provide for your loved ones and maximize their inheritance by avoiding probate and reducing estate taxes. Putting assets in trust can also be an important part of business succession planning. Certain types of trusts can also prevent the courts from controlling your assets if you are incapacitated.
The grantor is the creator of the trust and has full control and legal capacity to manage or change the trust at any time.
The trustee is responsible for managing the property in the trust. If you do not want to be your own trustee, you can name an adult child, friend, or institution to manage the trust while you are alive.
The successor trustee manages the assets in the trust after your death or if you should become incapacitated.
The beneficiary is the person(s) or organization benefiting from the trust. Beneficiaries do not have to exist at the time the trust is created.
Property consists of the assets which are put into a trust, and can include any type of asset, including money, investments, jewelry and real estate.
Types of Trusts
A living trust or family trust is revocable, which means that it that can be changed or revoked by the grantor while he or she is alive. With a revocable living trust, ownership of your assets is transferred to the trust but you do not have to relinquish control over the trust. When the grantor dies, the trustee gains control of the assets in the trust. This allows your estate to avoid probate so your assets can be distributed to your loved ones right away. A revocable trust does not protect assets from estate tax, but can help your estate avoid probate court.
If you are incapacitated by an illness or or accident, a living trust can also allow your trustee to handle your financial affairs without the need for a court-appointed guardian.
An irrevocable trust is a trust that cannot be changed or controlled by the grantor once the trust is deemed irrevocable. Assets held in an irrevocable trust are not subject to estate tax after your death. In addition, transferring assets to an irrevocable trust can save on annual income taxes while you are alive.
Testamentary trusts are irrevocable trusts created by a will after the grantor dies. People with large estates often use testamentary trusts to reduce estate taxes and to protect property from creditor claims. Life insurance policies included in testamentary trusts are not subject to federal income or estate taxes.
Many parents use testamentary trusts to provide for their children, and to ensure that gifts left to the children are not distributed as a lump sum or given to the children at too young of an age. A testamentary trust may also be used to make sure a special needs beneficiary is provided for.