What is a Trust?
A trust is a private and efficient way to hold and distribute assets and property. Trusts deal with specific assets, and set conditions on when and how they are to be used and distributed. A trustee (person, bank, or corporation) agrees to hold and take care of your property until a certain time that you specify, when it would be distributed to your beneficiaries.
Living vs. Testamentary Trusts
A “living trust” becomes effective while you (the grantor) are still alive. A trust created under a will is called a “testamentary trust” and is only effective after your death and after the will goes through probate. Living trusts are easier to change during your lifetime, while a change to a testamentary trust usually means a change to your will as well.
Revocable vs. Irrevocable Trusts
There are also two kinds of living trusts. A “revocable” trust means you reserve the right to make changes later on, and you still may be the beneficial owner of the property in the trust. An “irrevocable” trust cannot be changed once it is effective since you are basically giving up ownership of the property you put in this trust. Sometimes irrevocable trusts are used to transfer ownership of property as a result of a divorce, if minor children are involved, if someone is planning to apply for Medicaid, or to attempt to reduce estate taxes.
When Would I Use a Trust?
Trusts are an added protection for your property that set conditions for when and how it should be used and/or distributed. A common example is appointing a trustee to hold, manage, and invest assets for minor children until they graduate from college or become a certain age and are able to manage the inheritance on their own. Another example is creating a trust for a second property out of state, since each state usually requires a separate probate process and this can add up quickly. A third example is keeping your wishes out of the public eye. Trusts distribute your property privately and may be a good solution if you believe family members might become disgruntled or even resort to contesting your will. When you create a trust, there is no question of whether you “really” meant to leave a piece of property to the person you named. Finally, trusts can sometimes reduce estate and gift taxes, minimize exemptions, and protect assets from creditors or lawsuits.
How is a Trust Different from a Will?
A trust is also used to distribute your assets, but unlike a will, it does not require your loved ones to go through the probate process after your death.
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What Else Should I Know About Trusts?
Many questions we hear about trusts involve a specific type of trust. Our experienced attorneys can help guide you through the process and can advise you on what kinds of trusts might be the best choice for your situation.
Contact us if you have any questions about creating a trust.
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