If you ask trust attorneys whether a trust is a beneficial estate planning tool, the answer will most likely be yes. Trusts are beneficial in minimizing estate taxes and also in avoiding probate. There are many other benefits as well. Here are answers to some of the most common questions about trusts.
Trusts are essentially fiduciary agreements based on the trust and confidence that exists between the trustee and the person making the trust, known as the trustor. The trust agreement authorizes the trustee to manage the trust assets and distribute them to the named beneficiaries, according to the terms of the trust agreement. There are many different types of trusts with their own benefits.
Similar to a will, a trust provides a way for you to decide how and when your property will be distributed upon your death. However, a trust can also provide a way to protect that property in situations where a certain beneficiary may need assistance in managing that property. Another benefit is that a trust can help you avoid the expensive and time-consuming court process known as probate.
Trusts are classified as either revocable or irrevocable based on how the trust operates. A revocable trust, sometimes referred to as a living trust, allows the trustor to modify the terms of the trust or revoke the trust entirely, at any time while the trustor is still alive. Upon the trustor’s death, the trust then becomes irrevocable. A revocable trust is very flexible because it allows you to modify your instructions in order to address any changes in your circumstances or intentions. The trustee does not take control of a revocable trust until after the trustor's death or incapacity.
An irrevocable trust cannot be modified by the trustor once it has been created and executed. This particular difference makes an irrevocable trust helpful in ways that a revocable trust cannot. Once you establish your irrevocable trust, the assets you placed in the trust are essentially out of the reach of creditors, legal judgments. The trust property does not have to go through probate court and will not be subject to estate taxes. Although you must give up control over the property you place an irrevocable trust, you trade that loss of control for more favorable tax consequences. If you still have questions, contact our trust attorneys.
Living trusts are created to be the revocable type of trust, which means you have the ability to modify its terms at any time during your lifetime. It is always wise to periodically review your living trust terms so that changes can be made as necessary. Most importantly, if there have been changes in your circumstances, like marriage or divorce, the birth of a child or grandchild, or the death of an heir or beneficiary, then you can modify your living trust to reflect those changes. In fact, you have the power to amend or revoke a living trust as often as you like during your lifetime.
A testamentary trust is a specific type of trust that is included in your last will and testament and provides for the distribution of all or part of your estate. A testamentary trust will usually include the proceeds from a life insurance policy that was held by the grantor. You can have more than one testamentary trust included in the terms of your will.
A non-testamentary trust also referred to as a living trust, becomes effective when the trust is signed and notarized, and the property is funded or transferred to the trust. These types of trusts are referred to as "living" trusts or "inter vivos" trusts because they essentially go into effect immediately, while the trustor is still living. A living trust can also be created as either revocable or irrevocable, depending on the purpose of the trust.In contrast, a testamentary trust will not become effective until the death of the trustor and, at that point, it becomes irrevocable. Being irrevocable means, it cannot be modified or canceled. However, since the trust does not take effect until after death, the trustor is able to modify the terms of the trust at any point during his lifetime. Our living trust attorney can advise you about your choices.
A charitable trust is simply a type of trust that names a charity as the beneficiary. There are two types of charitable trusts: The Charitable Lead and The Charitable Remainder. With a Charitable Lead Trust, certain assets will be distributed to the charity you have selected, while the remainder is distributed to your chosen beneficiaries.A Charitable Remainder Trust is set up in almost the opposite way. The trustor of a Charitable Remainder Trust receives a specified amount of income from the trust for a specified period of time. After that time, all remaining assets will be distributed to the charity of your choice.
If you have questions regarding trusts or any other estate planning matters, please contact the experienced trust attorneys at Gaughan & Connealy for a consultation. You can contact us either online or by calling us at (913) 262-2000. We are here to help!