A Basic Overview of a Trust: What it is and Why You Must Be Prepared
A well-planned trust is a critical component of asset protection in estate planning. With a trust, assets are placed under protection to ensure that the Grantor can maintain a certain amount of control over their use and distribution. Assets that are placed into a trust can be managed more effectively during the lifetime of the Grantor, and protected in order to ensure that the financial interests of the beneficiaries are taken care of.
What is a Trust?
In its most basic form, a trust is a type of agreement that allows an individual known as the Grantor or Trustmaker to enter into an agreement with a Trustee, who is an individual or entity that will manage the properties and assets that the Grantor will place in the trust. Normally, the Grantor will name a person, company or other entity as beneficiary. The beneficiary is the legal recipient of the assets named in the trust.
Benefits of Setting Up a Trust
Traditionally, a trust is considered a reliable form of asset protection. Once the Grantor transfers assets into a trust, he or she no longer has these assets in his or her name. Instead, the Trustee becomes the legal controller of the assets and is responsible for its management. This action helps protect these assets from potential loss.
Setting up a trust also allows the Grantor better control over common estate issues, such as how the asset will be settled, used and distributed, how much, when and to whom. Other than family members and friends, the Grantor may also specify certain entities such as charitable institutions and name them as beneficiaries. In case of the grantor’s death or incapacitation, the trust can be used as a substitute for a will, allowing the trustee to settle the estate quickly and privately. The terms of a trust can also ensure that the Grantor’s assets remain in the family. For example, in case the surviving spouse decides to remarry, there is a risk that the assets could be passed on to the spouse’s new family. Setting up a trust helps prevent this from happening. A trust can also protect the assets from expensive state and/or federal estate taxes and avoid probate.
Revocable Vs. Irrevocable Trust
Estate planning generally requires setting up either a revocable or an irrevocable trust. Initially both trusts are considered inter vivos trust, which means that either one will go into effect while the Grantor is still living. The Grantor can then decide whether to keep the trust irrevocable or revocable. Essentially, an irrevocable trust is a trust with terms that remain in effect and cannot be changed while a revocable trust can be revoked and the terms changed.
An irrevocable trust, once in effect, prevents the Grantor from retrieving an asset or property. A revocable trust, on the other hand, still places the asset or property into the trust but allows the Grantor to cancel the transfer, modify the details and even take back the asset. He or she can then terminate the trust.
Do You Need Legal Assistance?
A basic trust agreement is usually simple enough to be drawn by the Grantor. Once the transfer of assets into the trust is completed and the agreement is notarized, it will then take effect. However, if certain issues and questions exist about the estate that need to be addressed, getting advice and assistance from an estate planning lawyer may be a good choice. An experienced lawyer will be able to provide the most important information about estate law that will be valuable for creating and executing an effective and fair living trust.