Trusts: Do You Need One For Your Estate Plan?

Trusts: Do You  Need One…

Besides the Last Will and Testament, which is considered to be the most basic and foundational estate planning document, the next most common document for estate planners is a trust. A trust has a few characteristics in common with a Will, but it can do several things that a Will cannot. This blog will provide a general overview of trusts and their usefulness in estate planning.

Key Aspects of a Trust

There are three people involved in a trust: the grantor (sometimes referred to as the “trustor” or “settlor”), the trustee, and the beneficiary (or beneficiaries). The trustor is the one who creates the trust and funds the trust with property and assets, which will eventually be passed on to the beneficiary. The trustee is named by the trustor to manage the contents of the trust according to the document's instructions.

So, why would someone create a trust? There are a few benefits of creating a trust, including:

  • The assets contained in a trust do not have to pass through probate court, which is how an estate is settled after someone's death; this saves heirs time and money
  • The trust and its contents are not made public
  • The trustor can control when and how the trust's assets are distributed to the beneficiaries
  • Depending on the size of the estate, the trust can help beneficiaries avoid estate taxes

Revocable vs. Irrevocable Trusts

Generally, a trust can be designated as either revocable or irrevocable. Revocable trusts can be amended or revoked by the grantor (person creating the trust) as long as the grantor has capacity. Irrevocable trusts, however, are not able to be changed by the trustor (except in rare circumstances). Revocable trusts, also known as living trusts, are a little more expensive to create and maintain, which is why some trustors opt for irrevocable trusts.

Other Types of Trusts

Fundamentally, most trusts are nearly identical in their structure and purpose: to act as a bucket or basket for assets so beneficiaries can receive those assets in an efficient and effective manner. Within that structure, though, there are various provisions that trustors can institute:

  • Spendthrift trusts: this type of trust is used so that the assets are shielded from the beneficiary's creditors.
  • Testamentary trusts: these trusts are activated upon the trustor's death. Usually, a Will designates the assets to be poured over into the testamentary trust. From there, the contents of the trust can be distributed.
  • Crummey trusts: trustors use this type of trust to make strategic gifts so that certain taxes are avoided.

Conclusion

While trusts are useful for many estate planners, that may not be the case for you and your financial situation. The surest way to create a plan that accomplishes your goals and takes care of your loved ones after you are gone is to consult with an experienced attorney like Bashirah Martin. You can get in touch with our firm here through the website or call us at 281-747-1326.

Categories: Estate Planning

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