A trust is a fiduciary arrangement that lets a third party (the “trustee”) hold assets on the behalf of a beneficiary. Trusts can be drafted in a variety of ways and can specify exactly how and when the assets pass to the beneficiaries.
Because trusts usually avoid probate, the beneficiaries can get access to these assets more quickly than they might if the assets were transferred using a will. If it’s an irrevocable trust, it may not be considered part of the taxable estate, which means there will be fewer taxes due at your death.
FedWeek’s recent article, “The Basics of Trusts,” explains some of the benefits of having a trust in your estate plan. Trusts can offer the following:
- Protection for possible incompetency. You can form a trust and transfer your assets into it. You can be the trustee, and you’ll have control of the trust assets and keep the income. A successor trustee will assume control, if you’re incapacitated.
- Avoiding probate. The assets held in trust avoid probate, which can be expensive and time-consuming. In the trust documents, you can direct the trust and provide how the trust assets will be distributed at your death.
- Protection for heirs. After death, a trustee can keep trust assets from being spent all at once or lost in a divorce, with specific instructions in the trust document.
A trust can be revocable or irrevocable. A revocable trust has to be created during your lifetime. If you change your mind, you can cancel the trust and reclaim the assets. With a revocable trust you can enjoy incapacity protection and probate avoidance—but not tax reduction. In contrast, an irrevocable trust can be created while you’re alive or at your death (a revocable trust becomes irrevocable at your death).
Assets transferred to an irrevocable trust during your lifetime may be shielded from creditors and divorce settlements. The same is true for the assets put into an irrevocable trust at your death.
Your heirs can be the beneficiaries of an irrevocable trust. The trustee you’ve designated will be tasked with distributing funds to the beneficiaries. The trustee will be responsible for protecting trust assets.
Contact an experienced trust attorney with your questions about possibly creating a trust for your situation.
Reference: FedWeek (May 9, 2019) “The Basics of Trusts”
Suggested Key Terms: Estate Planning Lawyer, Trustee, Revocable Living Trust, Irrevocable Trust, Asset Protection, Probate Court, Inheritance, Estate Tax