Ally Legal Planning

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Trusts can be an extremely useful and important part of your estate plan depending on your circumstances and needs.

There are three parties to any trust.  First, the Grantor is the person who creates the trust and transfers property to the trust (also commonly referred to as settlor, trustor or trust maker). Second, the Beneficiaries are those individuals who will receive the benefits (i.e. income and principal) of the trust. Finally, the Trustee is the person who holds and administers the trust property for the benefit of the beneficiaries. The trustee has a lot of responsibilities and must comply with a variety of fiduciary duties.

There are two general categories of trusts, testamentary trusts and inter vivos trusts (aka living trusts).  Testamentary trusts are typically created through a person’s Will and do not get funded with any assets until the death of the person who signed the Will. Alternatively, an inter vivos trust is a trust created during a Grantor’s lifetime by an agreement that is separate from the Will and inter vivos trusts are typically funded during the Grantor’s lifetime.

Inter vivos trusts can be set up as revocable trusts or irrevocable trusts. A revocable trust is commonly known as a “Will substitute” because a Grantor uses this type of trust to spell out exactly how their assets should be distributed upon their death.  A revocable trust is a trust that can be changed at any time during the Grantor’s lifetime.  The Grantor has access to any assets transferred to the revocable trust during the Grantor’s lifetime.  Conversely, an irrevocable trust is a trust that typically cannot be changed after it has been established.  An irrevocable trust is commonly used to removes assets from the Grantor’s taxable estate upon their death.  As a result, a Grantor typically does not have access to the assets transferred to an irrevocable trust.

There are two main reasons that someone may decide to include a revocable trust as part of their estate plan.  First, a revocable trust, if used properly, can completely avoid the probate process upon death.  With probate, everything that is filed with the court becomes public record, so avoiding probate ensures that your assets are kept private upon your death. Second, if you own real property in multiple states, a revocable trust can make the administration of your affairs much easier upon your death.  The typical process with regard to the transfer of real property requires the opening of a separate probate estate in each of the states where you own real property, in addition to the probate estate that is opened in the state where you were living prior to your death.  If all your properties are titled to a trust, probate in multiple states can be avoided.

The type of trust you need and the assets that you place into the trust can and will vary depending on your overall estate planning goals.  Contact us for a free consultation to discuss if a trust is right for you.