Estate owners often choose to redistribute their wealth through a trust. As an estate planning tool, it has many advantages. Importantly, a trust allows the grantor, or the original owner of the assets placed into a trust, to have full command over the distribution of their assets, including its timeline and terms. A trust can be conditional in that a child won’t receive an amount of money unless their college degree is completed. Another way of regulating the flow of assets placed in a trust is a spendthrift trust which allows the trustee to gradually release funds to the beneficiary, sometimes over the course of decades. In addition, since a trust does not have to be verified in probate court, it provides privacy over issues of inheritance and reduces the time, worry and expense typically associated with court interference. Finally, a trust could be a helpful tool in curbing the taxes your assets could be subject to, both during your lifetime, and after the assets are released to your heirs.
Who Can Be a Trustee?
You can choose anybody to be a trustee, including your family members or close friends. A trustee will carry the full responsibility for the management of the finances associated with the trust, including administration of businesses or dissolution of debt. Quite often, a grantor may choose themselves as the trustee, with other individuals serving as successor trustees in the event of the death or incapacitation of the original estate owner. Such an arrangement is common while planning one’s estate, as it does little to limit their access to their own properties or assets, while offering up a distinct projection for the estate’s future. In many instances, a corporate trustee and/or a skilled estate attorney may be chosen to oversee the trust in order to optimize the grantor’s estate and the income it produces.
Types of Trusts
While there are numerous types of trusts, each designed with a particular purpose and circumstance in mind, there is a basic distinction between revocable and irrevocable trusts. Each offers something the other cannot, while also having certain limitations. As the name suggests, a revocable trust is something that is still malleable after signing. A revocable trust offers a greater degree of control, as the grantor may change the terms of the trust or dissolve it altogether at any given point. Unfortunately, the assets in such a trust are often subject to higher taxes. In contrast, an irrevocable trust guarantees additional protections in form of reduced estate or even income tax for income generated by the assets placed into a trust. But an irrevocable trust requires a greater degree of commitment as it can be neither dissolved, nor updated.
Both types of trusts described above still fulfill their function as probate avoidance tools. However, a testamentary trust, or a trust that results from the grantor’s death or incapacitation, may still have to go through court to be distributed to beneficiaries. A testamentary trust is often used in order to collect untaxed proceeds from life insurance, or to direct a large sum or property to a young child or a loved one with a disability.
Do I Need an Attorney to Create a Trust?
Since the primary motivation for many of those creating a trust is the reduction of cost and worry, a professional estate attorney’s help is recommended. Launching a trust often takes a long time, excellent attention to every detail in your local legislature, as well as continuous supervision and frequent updates to the trust’s terms. A small mistake can result in invocation of significantly greater taxes or fees for your beneficiaries. To truly be in control of your assets, you need a legal expert on your side.