Trusts are among the most powerful instruments available in estate planning. They can be customized for many purposes, including protecting assets, providing for loved ones and charities, and protecting vulnerable children and adults.
Unlike a will, a trust can go into effect during a person’s lifetime. This means the creator can enjoy the benefits of the trust for years, and then the trust can carry out the creator’s wishes for a future generation.
What is a trust?
Put simply, a trust is a way of dividing ownership in property. The person who creates a trust, known as the grantor, provides the assets for the trust and places a trustee in charge of the assets. The trustee has a fiduciary duty to manage the assets for the people or entities known as the beneficiaries.
For instance, a grantor might provide money for a charitable trust. The trustee then manages the money in such a way that the trust is able to make regular payments to the charity.
Revocable living trusts
In living trusts, also known as inter vivos trusts, grantors can name themselves as the beneficiary of the trust. The trustee manages the assets for the benefit of the grantor. The trust document itself lays out the terms of this arrangement. For instance, the trustee may make regular payments to the grantor for the rest of their life. Upon the grantor’s death, the grantor’s children are named as the new beneficiaries.
A living trust can be revocable. This means the terms of the trust can dictate that the grantor can dissolve the trust if it becomes no longer effective. There are many advantages to this arrangement. For instance, it can be very handy if the grantor has a financial setback and suddenly needs more cash than the regular payments from the trustee can provide.
However, an irrevocable trust is superior in some important ways. For one, an irrevocable trust provides much stronger protection against tax liability.
Those who are interested in trusts should talk with a skilled estate planning attorney.