Estate planning can be an exciting process, but there’s no denying that it can be complex and confusing too. For many people who lack familiarity with estate planning techniques, various tools like powers of attorney and trusts can often seem like foreign concepts. Still, those tools can often mean the difference between an inefficient plan and one that can resolve a wide variety of different planning needs. And since the trust is one of the most important tools in any estate planning arsenal, it’s vital that you have at least some understanding of how they can benefit you. So, what is a trust and how can it enhance your estate plan?
The basics of the trust are relatively simple in nature. The trust relationship is one in which one party gives its property to a second party, and that second party manages and protects those assets for the benefit of a third party. There are certain specific elements that must be present in every trust to make it a valid trust relationship:
- A trust must have a grantor. That’s the person who creates the trust and funds it to accomplish his mission of delivering assets to heirs or other beneficiaries.
- The trust must also have a trustee. With a revocable trust, the grantor can name himself as the trustee, and appoint a backup known as the successor trustee to take over control of the assets when he dies. The trustee is charged with protecting those assets and using them for the benefit of any named beneficiaries.
- The trust must also include named beneficiaries. These are the people or entities for whom the trust is established, and it is they who ultimately receive the benefit of any assets in the trust.
- Trusts require funding. The grantor transfers ownership of some or all his assets to the trust, and those assets are then managed by the trustee.
- Every trust also need terms. These are the instructions that define how the trust operates, determine the extent of the trustee’s powers and responsibilities, and detail any other relevant information required for the trust’s operations.
Types of Trusts
There are a variety of trust types, and different ways of categorizing the types of trusts that you’ll hear about. To begin with, trusts can be either living or testamentary. The living trust is a trust that is active during the grantor’s lifetime. The testamentary trust is a type of trust that is created by the provisions of a Last Will and Testament, and thus doesn’t come into being until after the grantor is dead.
Living trusts also can be divided into two types of trusts: the revocable and the irrevocable. While these two trust types share the same basic structure and elements, their terms can be dramatically different. The revocable trust can be revoked at any time during the grantor’s life – just as the name suggests. That’s in addition to the grantor’s ability to retain control over his trust assets by naming himself as the trustee. The irrevocable trust cannot be changed or revoked, so assets that are transferred into it cannot be reclaimed by the grantor.
Of course, there are also a variety of specialty trusts that are designed to accomplish certain goals. These trusts are all similar in structure, but have trust terms designed to help the grantor accomplish special estate planning goals. They often address things like special needs heirs, charitable donations, or concerns about various taxes or asset protection.
What Can a Trust Do?
The primary purpose of every trust is to transfer assets to beneficiaries. If that purpose is not evident from the trust terms, then it’s likely that the trust won’t be recognized as valid if it’s ever challenged. In addition to that primary goal, however, trusts can be used to meet many other estate planning challenges:
- Your trust can eliminate the need for probate by providing a legal way to transfer assets to your heirs.
- The trust can help to maintain your estate’s privacy by keeping its settlement process out of the courts.
- Trusts can provide a better way to pass money or other assets to minor heirs, disabled beneficiaries, charitable organizations, and heirs who might not have the money management skills needed to cope with a large bequest from a will.
- When your trust is irrevocable, you can gain important asset protection, reduce the impact of estate taxes, and help yourself meet the eligibility standards for critical long-term care benefits like those offered by the Medicaid program.
- Trusts can help you deal with out-of-state property concerns by eliminating the need for probate in those states.
How Does a Trust Impact Your Planning?
If you’ve never really considered the trust option, then it can be difficult to envision how it can benefit your comprehensive estate planning effort. However, the impact of a trust can be dramatic, especially when you have even a moderate number of valuable assets. The Last Will and Testament may be the backbone of most estate plans, but that doesn’t mean that it’s always the best way to address every planning need. For example, you cannot leave money directly to minors, but a trust can make that process much simpler. You also may not be able to leave money to an heir with special needs without impacting government benefits that he or she may need to survive. The right kind of trust can resolve that challenge as well.
So, what is a trust? It just might be the missing ingredient in your estate planning strategy! The best way to find out whether that’s true in your case is to consult with an experienced trusts attorney in your area. The estate planning experts at the Augulis Law Firm can help you to evaluate your existing estate plan or begin the process of crafting an entirely new plan. We’ll also work with you to find the best solutions to your estate planning obstacles, and can help you determine whether a trust is right for you. To learn more about trusts and their benefits, contact us at our website, www.AuguliaLawFirm.com or give us a call at (908) 222-8803.
- Medicaid Attorneys Explain How a Pre-Paid Funeral Contract Can Help - March 31, 2021
- What Is a QTIP Trust? - March 25, 2021
- How Would You Feel about a Robot Caregiver in the Future? - March 18, 2021