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TRUSTS

While many people understand the need to create a Last Will and Testament that specifies their last wishes, they may not be aware of other methods of estate planning. Trusts are one tool that can simplify the process of passing assets to heirs while providing a wide variety of other benefits.

 

If you want to avoid the probate of your estate after your death to ensure privacy, you can execute a Revocable Living Trust. 

 

So what IS a Trust?  A trust is a legal agreement designating and involving three (3) parties:

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  • The Settlor (or Settlors) who owns the property being placed in the trust, provides instructions for how these assets should be transferred to one or more beneficiaries, usually upon the Settlor’s death, and gives those assets into the control of the Trustee.

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  • The Trustee (or Trustees) who manages the property for the benefit of the Beneficiary named in the Trust.  In the case of a Revocable Living Trust wherein a husband and wife are the initial Settlors and Trustees, the surviving spouse will become sole Trustee on the death of the other.  When the remaining Trustee either becomes incapacitated or dies, the Successor Trustee named in the Trust will become the acting Trustee.

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  • The Beneficiary of the Trust assets. 

Typically when a trust is executed the person or persons executing it have all three roles: they are Settlor, Trustee and Beneficiary.  The Beneficiary changes upon the death of the Settlor to the persons named by the Settlor as those entitled to receive the Trust property after the Settlor dies.

Trusts provide a wide variety of benefits, including:

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1.  Control over distributions to beneficiaries.  A trust can specify when and how assets will be distributed to beneficiaries. For example, if a beneficiary is a minor, some funds can be used to pay for their education, and other funds can be provided to them when they reach adulthood. Trusts can also be used to set aside funds for a charitable organization or to provide for the care of a family pet. 

 

2.  A trust is a way to control property beyond the grave.  If you probate assets, the distribution is made and the deceased's personal representative cannot control how it is used.  It just flat out belongs to the devisee under the Will.  Under a Will, once a child becomes age 18, they are a legal adult and have full control.  With a trust, the Settlor can specify an age upon which a beneficiary can have control of their share of the property.  A trust can say that the trust continues until the child, or other beneficiary, is age 21, 25, 30, or any age the Settlor chooses.  The child may benefit from income and principal according to the terms set forth in the Trust.  The trustee does the investment of the trust property and in many cases decides what is reasonable for the child to receive.  A trust can be used to space payments to a specific beneficiary over a period of years in order to prevent rapid dissipation of a distribution to a beneficiary.

 

3.  Use of trust assets during the Settlor’s lifetime.  No control is lost over assets put into a revocable living trust by the Settlors.  They can sell, buy, spend, drain and use all trust property as they see fit in their sole discretion.  Funds in a trust can be used to provide for the Settlor's needs when they near the end of their life.

 

4.  Avoiding conservatorships.  If the original Trustee becomes incapacitated or unable to manage their own affairs, instructions can be left for the Successor Trustee regarding how assets should be managed and the Successor Trustee can take over duties and management of the estate.  Provided the original Trustee is cooperative, the Successor Trustee can function without the need for a conservatorship. 

 

5.  Avoiding probate.  A trust avoids probate because the Successor Trustee is authorized to step into the shoes of the Settlor who died and do whatever they had the authority to do.  Upon the death of the initial Trustee, the Successor Trustee will pay the Settlor’s creditors, taxes, expenses of last illness and funeral expenses.  In some cases the Successor Trustee will need to provide a final accounting to the trust beneficiaries.  The Successor Trustee will then distribute the trust assets to the named beneficiaries without the need to go to court and go through the probate process.  This allows family members to access funds more quickly and easily, and it can also help avoid litigation over a contested estate.  While a will becomes part of the public record when it is entered into probate court, the terms of a trust remain private and confidential.

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The two basic types of trusts are (1) a revocable trust, also known as a revocable living trust or simply a living trust, and (2) an irrevocable trust. The trust must be funded to be effective.  For example, real property must be quit claimed to the ownership of the Trust, and bank accounts changed to the ownership of the trust.  In most cases automobile titles are changed to the ownership of the trust.  Life insurance beneficiaries can be changed to the Trust


Revocable Living Trust.  A revocable trust means that the trust can be revoked or amended during the lifetime of the Settlor.  The Settlor can remove beneficiaries, designate new ones, and modify stipulations as to how assets within the trust are managed.  The Settlor can to change the trust's terms regarding how funds will be used or distributed.  

A trust is living, meaning it commences to be effective during the lifetime of the Settlor and is funded during the lifetime of the Settlor, not at the death of the Settlor. 

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If a living trust is revocable, the Settlor gives up ownership rights of the property but  continues to maintain control and management of their assets as the trustee for items related to health, education, maintenance, and support.  After the death of the Settlor or Settlors, the trust automatically becomes irrevocable, and a Successor Trustee will take control of the trust and carry out its terms.   

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Irrevocable Living Trust.  The terms of an irrevocable trust, in contrast, are set in stone the minute the agreement is signed. Except under exceedingly rare circumstances, no changes may be made to an irrevocable trust.  If a living trust is irrevocable, meaning that once it is funded, the Settlor gives up ownership rights and control of the assets in the trust, it can be used to protect assets from creditors, provide for beneficiaries with special needs without endangering their ability to receive public benefits, or ensure that the Settlor is able to receive Medicaid benefits.  The Settlor, or Benefactor, having transferred assets into the trust, effectively removes all rights of ownership to the assets and, for the most part, all control.  An irrevocable trust can protect your assets from creditors and judgments if you work in a profession that puts you at risk for certain lawsuits. An irrevocable trust can be a good way to ensure that your estate assets are preserved for your beneficiaries.  The main downside to an irrevocable trust is simple: It's not revocable or changeable. You no longer own the assets you've placed into the trust. In other words, if you place a million dollars in an irrevocable trust for your child and want to change your mind a few years later, you're out of luck. An irrevocable trust cannot be modified after it is created without the consent of the beneficiaries.

A pour over will is also executed along with a trust.  This document is a safety net in case certain assets are not placed into the ownership of the trust.  Those assets would have to be probated, but the devisee of the pourover will is the trust.  The assets are poured over from the probate estate into the trust and from there they go to the beneficiaries designated in the trust.

 

The primary reasons most people execute a revocable living trust are to avoid probate and to avoid, where possible, a conservatorship.  In addition, for many situations, a trust offers more flexibility and control than a will alone. I have the skill and knowledge to help you create:

 

  • Revocable living trusts;

  • Irrevocable trusts;

  • Special needs trusts;

  • Children's trusts

 

Healthy Couple

I will work with you in deciding which trust or trusts are most applicable to your situation. Choosing a person, or a trustee, to manage your trust is a very important decision and one that requires careful consideration. Let me assist you as you take the steps to providing a secure future for your family.

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