Trust & Wills
According to the Business Dictionary, the definition of a trust is "Legal entity created by a party (the trustor) through which a second party (the trustee) holds the right to manage the trustor's assets or property for the benefit of a third party (the beneficiary)."
While you have the option of executing several types of trusts, all trusts are generally a system with three-party ownership where one party gives another party holding rights over assets and property for a third party or the beneficiary.
THE THREE PARTIES OF A TRUST AND HOW THEY OPERATE
The three parties of a trust include the trustor, the trustee, and the beneficiary. Each party has different functions in a trust.
- Trustor: A trustor creates the trust and gives the control of their property, assets, or estate to the trustee.
- Trustee: A trustee manages the assets and property of the trustor.
- Beneficiary: A beneficiary is the recipient of the benefits listed in the trust agreement. The trustee delivers the assets or property to each beneficiary according to the trust agreement terms.
THE MOST COMMON TRUST TYPES
There are numerous trust types, but the basic structure is similar, with each trust type having different specifics and purposes. There are three common trust types: revocable, irrevocable, and testamentary.
- Revocable Trust: A revocable trust gets created while the trustor is alive. The trustor can change, alter, or terminate a revocable trust at any time and has a setup for transferring assets outside of probate. The trust includes the property and assets intended for use during their lifetime. The trustor benefits from the trust while alive, then the assets and property pass to the beneficiary upon death.
- Irrevocable Trust: A trustor cannot alter an irrevocable trust during their lifetime, nor can the trust be revoked after death. This type of trust contains assets and property not returnable to the trustor. These trusts are more tax-efficient, with little to no estate taxes. The irrevocable trust transfers the assets out of the trustor's name and into the beneficiary's name.
- Testamentary Trust: The testamentary trust manages the deceased assets on behalf of the beneficiaries. In addition to reducing estate tax liabilities, the testamentary can direct access to assets by children or manage charitable donations distribution.
TRUST USES AND THEIR BENEFITS
People draw up trusts for many different reasons, including managing their assets before and after death and lessoning the estate tax burden. Trusts, depending on the type, can deliver several benefits to the trustor during their lifetime. Also, trusts can manage estates and assets held for minor children until they can manage the assets for themselves.
While trusts have many benefits, the most common include avoiding probation and estate taxes, protection from creditors or family members, and keeping wills private. A trust allows you to protect your financial legacy and ensure your property goes to those you choose to benefit from it.
What about a last will & testament?
Last Will & Testaments are a great tool when you would like your estate to be distributed differently than what the state has determined is in your best interest. However, many people may not know that the Last Will & Testaments still need to go through probate. So, while a trust is a probate avoidance tool, the Last Will & Testament itself is not.
However, within an estate plan, it is good to have a pour-over Last Will & Testament that will distribute any property that was not properly placed into the trust during the lifetime of the trustor. The pour-over will is there as a backup plan rather than the primary form of having your estate distributed after death.
Let us help you ensure your financial legacy by contacting us about your estate planning goals.
comments powered by Disqus