If you’re thinking about your estate planning affairs, you may be considering the use of trusts. It’s important to understand how trusts work, so that you can make the best planning decisions; take a look at the following basic information to learn more. If you have any questions, or if you’d like to discuss how trusts can fit in with your estate plan, meet with an experienced, qualified estate planning attorney.
Trustee Holds Legal Title to Trust Assets
When you create a trust, you’re giving a trustee control over your trust’s assets. In fact, the trustee holds legal title to the assets; this means the trustee owns the assets for the benefit of the beneficiaries.
Having the opportunity to appoint a trustee (and successor trustees) makes it possible for you to leave behind assets to your beneficiaries, while ensuring assets are properly managed, distributed, and used per your instructions.
You Create the Trust
As a trustor (i.e. “grantor,” “settlor”, “trust maker,”) you’re the individual who creates your trust, which is a legal agreement (i.e. contract.) and typically re-title your assets into the name of the trust. Husbands and wives can be co-trustees.
You will need to appoint someone to manage the trust. This person is called the trustee. For many trusts, including the popular living trust, you can appoint yourself and your spouse as the trustees of your trust. If so, then you will still need to name a successor trustee. It’s important to choose someone who is responsible, reliable, a good record keeper and a good communicator, so that your affairs are in good hands. In other words, you must trust this person.
You will also name beneficiaries. In the typical living trust, you will be the beneficiary during your lifetime. However, you will also decide how your trust’s assets will be distributed after your death. Your remainder or death beneficiaries are the individuals and charities who will receive your assets.
There are Many Types of Trusts; With Their Own Set of Benefits and Purposes.
If you want to remain in control of your assets and your trust, making changes to your trust throughout your lifetime, consider creating a revocable living trust. This is a trust that gives you complete control throughout your lifetime, so long as you have legal capacity.
If you need to get assets out of your estate for federal tax or asset protection purposes, you must give up control over them; and, an irrevocable trust may be appropriate. Except for exceptional circumstances, these trusts can’t be changed. Examples of irrevocable trusts would be life insurance trust and charitable trusts.
If you have any questions about the use of trusts, consult with an experienced and qualified estate planning attorney.