Perhaps you have heard about trusts but wonder exactly what they are and what they can help you accomplish. Simply put, a trust is an agreement outlining how assets will be managed and held for the benefit of another person. There are many types of trusts, capable of addressing a wide range of concerns and accomplishing a number of important goals. Let's begin our discussion by looking at the elements and terminology shared by most trusts.
All trusts have a grantor (also known as a trustor or settler). The grantor is the person who creates the trust and has the legal authority to transfer property held in the trust.
The beneficiary is the person who “benefits” from the trust. A beneficiary can be one person or a number of different parties. A beneficiary can also be an institution, such as a charity.
The trustee is the individual (or in some cases, the institution) authorized to take title to property on behalf of a beneficiary. The trustee is responsible for managing the property according to the rules described in the trust document. Additionally, the trustee must act and make decisions based on the best interests of the trust's beneficiaries.
For a trust to accomplish its goals, it must be funded by the grantor. “Funding a trust” refers to the process of transferring ownership of assets from the grantor to the trust. These assets can include money, real estate, stocks, jewelry, and more. It is important to note that assets “outside” the trust are not controlled by the trust.
Revocable versus irrevocable trusts
A revocable trust is a trust that can be altered by the grantor during his or her lifetime. An irrevocable trust, on the other hand, is a trust that cannot be changed by the grantor (except under extraordinary circumstances). In the case of irrevocable trusts, the grantor typically foregoes total control of the property and must obey all trust rules and guidelines. Furthermore, a trust can be revocable during the grantor's lifetime and then become irrevocable upon the grantor's death.
When most people use the word “trust” in the context of estate planning, a revocable living trust is the one they have in mind.
A revocable living trust allows you to maintain complete control over your assets while you are alive and after you have passed away. You don't have to transfer your assets to the trust all at once, you can do so over time and even add to the trust as you acquire new assets.
Other benefits of a revocable living trust include:
- Avoiding probate. The probate process is time-consuming, needlessly expensive and exposes your assets and estate to public scrutiny
- It can be changed over time, to compensate for changes in your financial and family situation
- Basic wills can lead to disagreements among family members. A revocable living trust can help eliminate challenges to the will and ensure beneficiaries receive what you have intended for them
- It allows for ongoing financial management. As your wealth accumulates, so too will assets in the trust
One of the questions frequently asked by clients is whether or not they need a trust. The answer depends on the client's unique needs and goals. Would you benefit from a trust? We'd be happy to discuss the matter with you at your earliest convenience. Give us a call for your complimentary consultation at 260-969-1177.