We are often asked the question, what is a trust and do I need one? While there several reasons to setup trusts the most prevalent is to avoid probate and make transferring property to beneficiaries easier and faster.
A simplified answer to what is a trust, is it is can be compared to a safe deposit box that holds valuable items. Individuals assign property rights over to the trust. Since property is no longer owned by the person it becomes exempt from probate.
One of the biggest misconceptions about trust funds is they are reserved for wealthy individuals. While there are certain kinds of trusts, such as irrevocable life insurance trusts (ILIT) which is used to offset estate and inheritance taxes, the bulk of trusts are available to people with ordinary means.
Trusts are one of the best ways to protect assets for minor children, as well as relatives who don’t have good money management skills. They are ideal for gifting money and property to people who receive government assistance without interfering with benefits.
Trusts are also perfect for people who prefer to keep financial matters private. When estates pass through probate the last will and testament becomes a matter of public record. Anyone who wants to view the Will can obtain a copy from probate court.
When estates are protected by a trust the last Will is kept private and only can be viewed by estate administrators and beneficiaries. Furthermore, trusts are considerably more difficult to contest than Wills. This makes them a good choice for people who are concerned about family disagreements over inheritance property.
Lastly, setting up a trust grants permission to another individual to manage personal assets if the Grantor becomes incapacitated. Trustees can be appointed to take care of personal finances or oversee financial assets through a durable power of attorney.
Prior to setting up a trust it is recommended to consult with an estate attorney. Doing so ensures the right type of trust is selected to accomplish the overall goals. Additionally, estate lawyers are familiar with state laws and can help Grantor’s maximize available benefits.
When setting up trusts, individuals will need to choose between living or testamentary. Living trusts are arranged while the Grantor is alive, while testamentary trusts are arranged in accordance with a Will after a person has passed away.
Living trusts can be either revocable or irrevocable. Revocable trusts can be altered throughout the duration of the Grantor’s life, whereas irrevocable trusts cannot be changed.
Revocable living trusts are a good option for nearly everyone. This kind lets Grantors control how their assets will be distributed upon death. Living trusts include durable power of attorney to let another person manage assets if Grantors become incapacitated.
Other types of trusts include child trust fund, special needs trust, spendthrift trusts, charitable trusts, and bypass trusts. Nearly all types are flexible and allow Grantor’s to make use of various options to customize provisions according to their personal needs.
Working with an estate planning lawyer will help you sort through the options and assure adequate estate planning measures are arranged.
The law firm of Craton, Switzer and Tokar focuses on helping clients’ protect their assets throughout their lifetime and beyond. We provide full estate planning services including probate, Wills, advanced directives, trusts, and power of attorney.
We invite you to read our blog if you have more questions about what is a trust, or want to learn more about estate planning. Feel free to contact us at 562-628-5533 if we can be of service to you.