A trust is a fiduciary arrangement that allows a third party, known as a trustee, to hold assets for a trustor, also known as a grantor. When you place assets into a trust, they are no longer owned by you; they are owned by the trust. This does not necessarily mean that you do not still have access to the funds or assets—only that you are no longer the official owner. There are many reasons to have a trust, including tax benefits, protection of assets from creditors, transfer of wealth, privacy, probate avoidance, and others.
What is the Difference Between a Testamentary Trust and a Living Trust?
A testamentary trust, sometimes also called a will trust, specifies how the assets of an estate are to be distributed after the trustor’s death. Assets are not transferred until that time.
A living trust, on the other hand, is a legal arrangement in which a person’s assets are transferred into the ownership of a trust that can be used for their use and benefit while they are alive. The assets in the living trust are then transferred to the beneficiaries named in it upon the trustor’s death. Very often, the trustor of a living trust is also the trustee and thus maintains control of the assets. A successor trustee named in the document takes over as trustee when the trustor dies, in this case.
What is a Revocable Trust vs. an Irrevocable Trust?
As the names suggest, a revocable trust can be altered or discontinued within the trustor’s lifetime, but an irrevocable trust cannot be changed or ended once it is established. Each of these types of trusts has different benefits and can be used in different ways in a careful estate plan. Irrevocable trusts tend to have greater tax benefits, while revocable trusts provide the most flexibility. A skilled trust attorney can help you decide which type of trust is best for you in your specific circumstances.
Aren’t Trusts Just for Rich People?
While it is true that trusts can have certain specific benefits for those with large estates and high incomes, there are few people who cannot benefit from a trust in one way or another. Putting assets in a trust, for example, can save your loved ones from having to go through a long and expensive probate process after your death. This is beneficial no matter the size of your estate. A trust can also take assets out of your name, possibly making you eligible for certain benefits such as Medicaid while protecting those assets against creditors or legal judgments. If you have a loved one with special needs, setting up a trust for them can ensure that they are provided for, their finances are managed by a trustee you choose, and their inheritance will not jeopardize and government benefits they are receiving. Trusts have many benefits. Speak to one of our skilled estate planning attorneys to find out how a trust can benefit you.