The use of a trust to hold one’s own assets or assets for another’s benefit can be extremely beneficial for a host of reasons. For many, however, the trust concept seems overwhelming and daunting but it need not be.
What is a trust?
Simply put, a trust is an instrument that creates a fiduciary relationship between the creator of the trust and a trustee, which gives the trustee the right to hold title to assets for the benefit of a beneficiary or beneficiaries.
Revocable versus irrevocable trusts
When establishing a trust, one can create a “revocable” trust, which has a provision to allow the trust to be amended, changed, or revoked. Alternatively, one can create an “irrevocable” trust, which cannot be amended, changed, or revoked.
Trusts commonly used
There are numerous types of revocable and irrevocable trusts created for numerous reasons and for numerous benefits. While the trust possibilities are numerous, here are some trusts that are created.
Charitable Lead Trust
Domestic Asset Protection Trust
Grantor Retained Annuity Trust
Incomplete Gift Non-Grantor Trust
Intentionally Defective Grantor Trust
Life Insurance Trust
Qualified Personal Residence Trust
Qualified Terminable Interest Property Trust
Special Needs Trust
Spousal Limited Access Trust
Funding of trusts
All probate assets (i.e., assets titled in your individual name) are subject to probate court proceedings. The probate process can be time consuming and “freeze” assets until the court appoints an executor, which can create serious liquidity problems for your estate and its beneficiaries. Transferring your assets into the name of your revocable trust prior to death can avoid these issues.
Understanding how the administration of a trust one creates will work is also an important component of the planning process.
Selecting, removing, and appointing a trustee
Choosing a family member or professional trustee
Does the trust need a Taxpayer Identification Number
Issuing Schedule K-1 to beneficiaries receiving income from trust
Decanting the provision of or revising the provisions of an irrevocable trust
The decision of what type of trust to establish and what assets to transfer to it, as well as who should benefit from the trust assets now and in the future, is a multifaceted decision. Our estate planning attorneys can help you find the right solution for you.