Planning for the future is hard, especially when you have to think about what will happen to your family after you pass away. Most people know the importance of having a will in their estate plan, but did you know it is sometimes just as important to include a trust?
It is beneficial to consider having a trust in your estate plan to replace your will or as a supplement to provide additional clarification and support. It is important to tailor your estate plan and type of trust to your specific needs.
Setting up a trust
While it is possible to set up a trust without the help of an attorney, experts tend to recommend that a person who wants to set up a trust ask a lawyer for assistance when it comes to defining the terms of the trust. These documents can be highly detailed, and any discrepancies could potentially lead to an unwanted debate. Some of the things to understand about trusts include:
- In every trust, there is a minimum of three people involved
- The person who creates the trust is called the trustor or grantor
- The person who is designated to manage the assets in the trust is called the trustee
- The person who receives benefits according to the guidelines set by the trustor and enforced by the trustee is called the beneficiary
What a trust does
The main function of a trust is to transfer ownership of specific assets to beneficiaries, often according to specified conditions. When the trustor dies, the trustee works with beneficiaries in a fiduciary duty relationship, which holds the trustee liable if the terms of the trust are not carried out correctly.
It is important that the trustor be careful when it comes to choosing a trustee, because that person needs to be capable of following and enforcing the provisions of the trust. Some people assign this task to a friend of family member, while others choose a less personal trustee, such as a lawyer or financial institution.
Which is right for you: Living trust or testamentary trust?
The trustor creates a living trust while they are still living. Control of the property is put in control of the trustee, a role usually filled by the trustor himself. While the trustor is still living, the trust is revocable, which means the terms of the trust can be altered as needed. When the trustor dies, the successor trustor takes over, and the trust becomes irrevocable in most cases.
A testamentary trust is also known as a “trust under will.” These trusts do not go into effect until after a person’s death, and it is often written into the will. This allows the trustor to pinpoint some of the provisions, such as:
- Giving installments of money to a specific person or cause
- Postponing a minor’s inheritance until they are an adult
- Over-riding surviving spouse as beneficiary in favor of children from a previous marriage
Besides the peace of mind having a well thought out plan provides, having a trust in place can often help survivors avoid probate or retain more of their privacy as assets are being divided.
Although many trusts can get quite complex, creating trusts is just one part of the estate planning process. An estate planning attorney can help you better plan for the future. Consider consulting an attorney to start protecting your loved ones as well as your assets.