What Exactly is a Trust?
MSN Money’s recent article entitled “What is a trust?” explains that many people create trusts to minimize issues and costs for their families or to create a legacy of charitable giving. Trusts can be used in conjunction with a last will to instruct where your assets should go after you die. However, trusts offer several great estate planning benefits that you don’t get in a last will, like letting your heirs to see a relatively speedy conclusion to settling your estate.
Working with an experienced estate planning attorney, you can create a trust to minimize taxes, protect assets and spare your family from going through the lengthy probate process to divide up your assets after you pass away. A trust can also let you control to whom your assets will be disbursed, as well as how the money will be paid out. That’s a major point if the beneficiary is a child or a family member who doesn’t have the ability to handle money wisely. You can name a trustee to execute your wishes stated in the trust document. When you draft a trust, you can:
- Say where your assets go and when your beneficiaries have access to them
- Save your beneficiaries from paying estate taxes and court fees
- Shield your assets from your beneficiaries’ creditors or from loss through divorce settlements
- Instruct where your remaining assets should go if a beneficiary dies, which can be helpful in a family that includes second marriages and stepchildren; and
- Avoid a long probate court process.
What is a Revocable Trust? One of the most common trusts is called a living or revocable trust, which lets you put assets in a trust while you’re alive. The control of the trust is transferred after you die to beneficiaries that you named. You might want to ask an experienced estate planning attorney about creating a living trust for several reasons, such as:
- If you’d like someone else to take on the management responsibilities for some or all of your property
- If you have a business and want to be certain that it operates smoothly with no interruption of income flow, if you die or become disabled
- If you want to shield assets from the incompetency or incapacity of yourself or your beneficiaries; or
- If you want to decrease the chances that your will may be contested.
- If you want to keep your assets private.
- If you want to avoid probate.
The most common feature of a revocable trust is probate avoidance. Although Louisiana does not have a particulaly difficult probate process, some clients nevertheless wish to avoid probate and have all their ducks in a row, leaving a minimum to be dealt with by their children.
What is an Irrevocable Trust? Another common type type of trust is an irrevocable trust. This type of trust generally has all of the benefits of a revocable trust, but also allows a client to qualify for long term care benefits in a much shorter period of time, and can also protect assets during the life of the client (and not just after the death of the client, as in the case with a revocable trust). You must be careful to establish your irrevocable trust in the correct way so that you qualify for all of the tax benefits that are available to you. An irrevocable trust drafted incorrectly can result in tens of thousands of dollars in income tax liabilites to your children.
A living trust (whether revocable or irrevocable) can be a smart move for those with even relatively modest estates. The downside is that while a revocable trust will usually keep your assets out of probate if you were to die, there still will be estate taxes if you hit the threshold.
By contrast, the beneficiaries of an irrevocable trust can’t be changed once it’s been created, although if you are the trustee of the trust, you can still control of the assets you put into the trust.
In addition, there are many types of specialty trusts you can create. Each is structured to accomplish different goals. Ask an experienced estate planning attorney about these.
Other articles that you can refer to on this topic are Do You Need a Revocable Trust or Irrevocable Trust? and What Is a Testamentary Trust? Other estate planning articles include: What Do I Need in My Estate Plan? and Some of Most Famous Estate Planning Mistakes
Reference: MSN Money (July 9, 2021) “What is a trust?”