What is a trust? A trust is a document, made legalized through the power of an attorney and application of law principles, which specifies the assignment of declared assets upon the death of an individual. A trust should not be used as a substitute for a will but instead, in conjunction with it. Furthermore, a trust helps protect the assets that the beneficiaries would receive and so as decrease the burden of estate tax.
There are different types of trust and the most common is the living trust. This type of trust is activated while the person, who applied for it, is still living. The process taken here is simple. The person would just have to move the assets into the trust and they would immediately become a part of it.
There are two categories under a living trust. These are revocable trust and irrevocable trust. The difference between the two is very clear. Revocable trust can be changed or revoked while the other one is not. However, the definition of the two is quite intricate.
A revocable trust is a legal document stating that a set of assets will automatically be directed to the declared beneficiary upon the death of the applicant or trust holder. Most of the time, revocable trust includes cash but it can also be tied up with a checking or savings account. Since it is revocable, the trust holder can change the terms of the trust anytime as long as he/she is still living. Also, the holder can access the assets in the trust in case of emergencies.
The word “revocable”, when applied to financial organizations such as the IRS, refers to bank accounts with payable-on-death provisions. Interested applicants can simply fill out the forms provided by the bank and state who will receive the funds contained in the account upon the applicant’s death. This provision works similarly like a trust. Also, this is a great account management scheme where the applicant is given the power to allocate his/her account.
An irrevocable trust is a complex type of legal agreement. It is considered as a separate entity. Here, a federal tax identification number is required. This is usually filed by the tax attorney or the accountant. The applicant would have to go to the state’s Bureau if Internal Revenue and comply with the documents needed for this transaction.
Since the trust is irrevocable and is a separate entity, the creator of the trust will have no access to the assets deposited under it. These assets will also not be owned or could not be touched by the beneficiaries until they are released. For example, if the creator has established a $200,000 trust account and the agreed term is that $10,000 will go to the beneficiary every year, no one could receive and release the money prior to that term. So, the beneficiary would just have to wait another year before he/she will get the other $10,000 until such time that the whole account will be empty.
An estate plan is important in order to properly assign one’s assets to intended beneficiaries. Estate planning may cover both revocable and irrevocable trust. Considering which one is right for you would entail an understanding on how you want your assets to be handled upon death, how flexible you would want them to be while you are still alive and what type of assets you will be leaving behind. Any of these trusts has different consequences and benefits. You can consult a legal consultant (such as an attorney) in order to have a clearer view on the type of trust that you can avail and their agreements as well.
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.
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.
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.
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.
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.