Trusts are valuable estate planning tools that provide enhanced flexibility and privacy in the administration of funds, property, or other assets. As a legal arrangement made among three separate parties, trusts are often created to minimize taxation or to help beneficiaries, including spouses, children, or other loved ones, avoid probate after your passing. Trusts are comprised of three parties that work in tandem to manage and administer the assets placed in them:
- The Trustor is the person who initially creates the trust.
- The Trustee is a person or entity, including an attorney or law firm, that manages the assets in the trust in accordance with the terms set forth by the
trustorupon the trust’s creation.
- The Beneficiary is the person or people who benefit from the trust and its assets.
Types of Trusts
Because so many types of trusts exist, it is often difficult for those with no prior legal knowledge to decide what type of trust is best for them, their assets and their loved ones. Thus, it is recommended that anyone considering a trust consult with an experienced and skilled attorney to discuss their options. Generally, a trust will fall into one of several categories, each with their own advantages and drawbacks. Types of trusts include:
A Revocable Trust is a popular arrangement in which the client is the trustor, trustee
During the creation of a revocable trust, your attorney will generally advise you to transfer as many assets as possible into the trust while you are alive in order to avoid those assets going through probate upon your death. As the trustee, or person in charge of the trust, assets in the trust will remain under your control; if you are not the trustee, then those assets will be managed by the person who has assumed that role. As the creator, a revocable trust will typically provide for all of the assets in the trust to be used for your benefit, or for the benefit of your loved ones or dependents throughout your life. At death, these assets will be distributed immediately or in
Some of the Benefits of a Revocable Trust:
- Revocable trusts do not require a court probate proceeding in order to access the assets contained within the trust.
- Revocable trusts are typically less costly to administer after the death of a loved one than a “will” probate proceeding.
- Revocable trusts do not require a four-month creditor claim period, but this claim period is required in a probate proceeding.
- Revocable trusts generally require less time to administer after death than a similar “will” probate proceeding.
- Revocable trusts can offer limited incapacity planning whereas a “will” does not.
- Revocable trusts are administered privately, while “will” administration is often conducted during a public court proceeding.
Unlike a revocable trust, the terms of an irrevocable trust cannot be changed once signed. The creator of the trust gives up any right to revoke, amend or otherwise change the terms of the trust at the time of creation, and thus is no longer considered to be the owner of the assets in an irrevocable trust. While such an arrangement seems limited, an irrevocable trust can be advantageous from an estate tax planning standpoint because these assets will not be included in your estate at death and therefore not taxed at your passing. In terms of asset protection, many assets placed in an irrevocable trust can be protected from creditors under specific circumstances.
Ultimately, it is important to choose your trust wisely, as mistakenly creating an irrevocable trust when you meant to create a revocable trust could result in serious and costly legal or tax consequences. Always consult a knowledgeable estate planning lawyer and discuss all your needs and options before committing to an irrevocable trust.
Testamentary trusts are trusts created as a part of a person’s “will” that establishes beneficiaries for specific assets, including the estate, major holdings, and life insurance policies. These trusts are only enacted at the time of death and are used to distribute assets consistent with the wishes of the deceased, want to learn more about this type of trust? Call to set up a free consultation, (818) 360-9500
Special trusts can vary widely, offering a range of benefits to their creators. Depending on the circumstances, such trusts can be designed to:
- Preserve assets for public benefit.
- Protect assets from creditors.
- Provide for use of the family residence.
- Provide for income tax, gift tax, and estate tax advantages.
- Provide incentives for beneficiaries to attain.
There are many detailed questions you might have about trusts, please give us a call to schedule your free consultation, (818) 360-9500.
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