What is a Trust?

A Trust is an agreement which provides for a person or entity (the “Trustee”) to hold and manage property for the benefit of another person (the “Beneficiary”). The trustee manages and distributes trust assets according to the terms and conditions set forth in the trust document. The person (or persons) creating the trust is called the “Grantor”. The Grantor appoints the “Trustee” and designates the “beneficiaries” of the trust. Often, the Grantor is also the Initial Trustee and a beneficiary of the trust during his or her lifetime. There are two types of trusts; a “living trust” and a “testamentary trust”. A living trust is created during one’s lifetime, whereas, a testamentary trust is created by a will when a person passes away.

Living Trust:

A living trust can be “revocable” or “irrevocable”. A revocable trust can be changed, modified, amended and terminated at any time while the Grantor is living. An irrevocable trust cannot be changed once it is established.

Revocable Trusts: The Grantor maintains complete control over the trust assets during his or her lifetime. Assets can be transferred into and out of the revocable trust during one’s lifetime and any income generated or received by the trust flows-through to the Grantor directly and any taxes due are paid under the Grantor’s social security number. A revocable trust is a very flexible and useful tool when planning for the care of loved ones and efficient disbursement of one’s estate upon passing.

Irrevocable Trusts: Once an irrevocable trust is created, the Grantor has very little control over changing its terms and conditions. Unlike a revocable trust, assets transferred to an irrevocable trust are bound by the terms of the trust agreement. The Grantor is unable to change the trust terms and conditions. Irrevocable trusts are primarily used to avoid estate taxation and for asset protection purposes. Additionally, once an irrevocable trust is funded (holds assets) a separate tax identification number with the IRS must be established.

If you have a living revocable trust, it is essential to fund the trust with assets while you are living. That way, upon your passing the trust holds all of your assets thereby decreasing or eliminating the assets that must be gathered through the probate court process and then transferred to the trust. Living trusts are private and do not require a probate court to administer the trust. It comes down to organizing and arranging your affairs in such a way that allows your loved ones the time and space to grieve by reducing the stress of having to gather all of your assets when you pass.

Testamentary Trust:

A testamentary trust is created by your will and it comes into existence only when you pass away. Testamentary trusts are irrevocable and are subject to the continuing jurisdiction of the Probate Court. Because the Probate Court has continuing jurisdiction, the trust’s terms and conditions and administration are open to the public. Furthermore, the trust is subject to various filing requirements with the probate court. As a result, testamentary trusts are usually more expensive to administer than living trusts and are subject to a variety of Probate Court filing requirements. However, a testamentary trust is a benefit when you are unable to nominate a suitable individual to serve as your successor trustee upon your passing.

Benefits to Using a Revocable Living Trust:

The benefits of a trust includes the ease of administering assets at death; the avoidance of probate costs; avoidance of delays and loss of privacy; flexibility to modify trust terms and conditions during your lifetime; and the ability to distribute assets to beneficiaries according to your wishes.

A trust is an excellent way to leave assets to loved ones (e.g. minor children, disabled beneficiary, substance abuse beneficiary) while also maintaining control over how the trust assets are distributed. Also, trusts are invaluable for those who want to provide for a second spouse while also preserving assets for children from a prior marriage. Because a trust can be tailored to address a variety of life circumstances, contingency planning for changing family relationships is available. The terms of a revocable trust can be amended when needed during your lifetime.

Should you have any questions regarding whether a trust is right for you, please do not hesitate to contact Winkler Legal Services, LLC to learn the many ways a trust can best serve your particular estate planning needs.