A trust is defined as a legal contract that lets an individual or entity (the trustee) hold assets on behalf of another person (the beneficiary). The assets involved can be cash, investments, physical assets like real estate, business interests and digital assets. There is no minimum amount of money needed to establish a trust.
US News’ recent article entitled “Trusts Explained” explains that these legal documents can be structured in a number of ways to instruct the way in which the assets are handled both during and after your lifetime. They can also reduce estate taxes and provide many other benefits.
Placing assets in a trust lets you know that they will be managed through your instructions, even if you’re unable to manage them yourself. Another benefit is that they are much more readily accepted by financial institutions than a Durable Financial Power of Attorney. They bypass the probate process allowing your heirs get the assets faster than if they were transferred through a will.
The three main types of trusts are revocable, irrevocable, and testamentary.
Revocable
Revocable trusts allows the grantor to change the terms or even dissolve the instrument at any time. It avoids probate, but the assets contained are generally still considered part of your estate. That is because you retain control over them during your lifetime. These instruments are often used in estate planning to protect against incapacity, divorce, financial exploitation and other risks.
Irrevocable
To totally remove the assets from your estate, you need an irrevocable trust. Irrevocable means it cannot be altered by the grantor after it’s been created. Therefore, if you’re the grantor, you can’t change the terms, such as the beneficiaries, or dissolve it. These instruments are often used to help someone qualify for Medicaid or other need-based programs & benefits.
A trust-based estate plan gives you more say about your assets than a will does. You can set more particular terms as to when your beneficiaries receive those assets.
Testamentary
Another type of trust is created under a last will and testament and is known as a testamentary trust. Although the last will must be probated to create the testamentary trust, this trust can protect an inheritance from and for your heirs as you design.
Trusts are not a do-it-yourself proposition: ask for the expertise of an experienced estate planning attorney.
Reference: US News (Feb. 7, 2022) “Trusts Explained”
