What is a Trust?
One of the best ways to make sure your family and assets will be protected after you’re gone is by setting up a trust.
Most people think that only the wealthy need to set up a trust, but in fact, there are many types of trusts that can help families of all income levels ensure their estate and assets are passed on to the proper people.
Setting up a trust allows you to appoint a third party, called the trustee, to hold assets on behalf of the people you set up to be your beneficiaries. Your trustee will oversee the funds and decisions about how and when distributions take place.
The Benefits of a Trust
A trust is a great way to have a little more control over what happens to your assets, particularly in comparison to a will.
A will is only effective once it’s been sent to the probate court, the probate court reviews and accepts it, and then ultimately appoints someone as executor. Whereas, a trust allows you to have more power in the decisions made after you pass.
The trust process typically gets your assets to your beneficiaries more quickly than the probate process and saves your family time, money and undue stress.
Additional benefits of a trust include:
- Controlling your wealth by specifying your terms (who, what, and when)
- Protecting your legacy from your heirs’ creditors
- Privacy, seeing as probate is a public process but a trust is not public record
- Appropriately distributing assets when your beneficiaries are minors
Types of Trusts
The two main types of trusts are revocable and irrevocable.
A revocable trust is easy to use because it can be amended or revoked at any time without tax consequences. You can move assets in and out as things change throughout in your life. Once you’ve passed away or become incapacitated, the successor trustee (named in the trust document) would then take over. At that point it’s just a matter of the successor trustee signing their acceptance – a one-page document saying they are now the trustee of the trust – and then they can manage the assets of that trust.
An irrevocable trust cannot be altered after it has been executed. Therefore, once you establish the trust, you will lose control over the assets and you cannot change any terms or decide to dissolve the trust. The main goal of an irrevocable trust is really to protect the assets, either from creditors, estate tax, or Medicaid/nursing home care costs.
Other common categories of trusts include:
Credit Shelter Trusts, which include a Marital, Family or Bypass trust (designed to avoid estate taxes)
Irrevocable life insurance trust (ILIT), an estate tax planning tool
Asset Protection Trust (designed to protect assets from creditors)
Special Needs Trust (designed to prevent disabled loved ones from losing eligibility)
What do I do if I am a Trustee?
Your first step if you are named successor trustee should be to contact a trust administration attorney who can help you formally “accept” your appointment as trustee.
From there, you will have various responsibilities, including (but not limited to):
- - Safeguarding assets of the trust
- - Communicating with the beneficiaries of the trust on a regular basis
- - Distributing the assets according to the terms of the trust
- - Terminating the trust when the trust administration is complete