Should you “Trust” in your Estate Plan?
By the time we enter adulthood, most of us know what a Last Will and Testament is. Many even have an understanding of what a Power of Attorney and a Health Care Proxy are, and why we ought to have them. However, although we have heard the term “trust” used in the context of estate planning, many people do not know what a trust is, or how a trust can, and in some cases, should be used along with the more familiar legal documents to create a comprehensive plan for our futures.
A living trust (also called an inter vivos trust) is a tool used for the protection, management and distribution of your assets. It is a written contract between the creator (also referred to as the trustor, grantor or settlor) and one or more trustees which goes into effect when executed. Thus, it provides for the governing of the creator’s assets while the creator is still living. Some living trusts are revocable, allowing the creator to retain control over the trust assets and to change the terms of the trust at any time. There are also permanent trusts, which are irrevocable, and cannot be altered by the creator alone.
When you create a revocable trust, the assets you choose are re-titled into the trust, and you name beneficiaries of the trust, allowing those assets to be immediately available to your beneficiaries upon your death, without the need for a court proceeding. A revocable trust allows you to retain control of the assets in your trust, but also can provide for the trustee to take over if you become incapacitated. Unlike a Power of Attorney, the trustee’s authority continues after your death, so that the trustee can distribute the trust assets, providing continuous management of your assets, and also avoiding probate. Of course, an added benefit to avoiding the delays brought about by probate is the lowering of the estate expenses, reducing court costs and attorney’s fees.
A revocable trust can be especially helpful if you own real estate, whether in or out-of-state, or if you have specific instructions on how you want your estate to be distributed. The use of a revocable trust should also be considered if you suspect that your will may be contested, or if you have a need for privacy, as a trust does not typically become a public document. A revocable trust can also be a good choice for those with smaller estates because it can make the administration of your assets much simpler by avoiding probate. For those with minor children, a revocable trust provides a way to ensure that your assets are distributed per age restrictions or other conditions determined by you. You may also use a revocable trust to protect against unrestricted distribution of assets to those who are addicted, incapacitated or disabled.
An irrevocable trust is a valuable instrument used to protect your assets, including your family home and life savings, and to preserve them for your children or other heirs. Like a revocable trust, the trust assets will bypass probate because they are distributed directly to the beneficiaries of the trust. There also may be some tax advantages. The assets you place in an irrevocable trust are held to be passed to your beneficiaries but are no longer controlled by you or considered part of your estate. It is because of this characteristic that irrevocable trusts are often used in Medicaid planning.
Trusts are an additional way you can plan for the safekeeping, care and protection of your hard-earned assets, and make it possible for you to pass your legacy on to those you love in the way that you intend.