What is a trust?

A trust is another estate planning vehicle that is established during an individual’s lifetime. Unlike a will, a trust is not subject to the probate process. If an individual has set up a trust during his or her lifetime and has transferred title to all of their assets to the trust, the Successor Trustee can act without waiting for probate.

A trust should be funded. An unfunded trust defeats the purpose of establishing a trust. Funding means that assets are placed in the name of the trust. Most, but not all, assets should be placed in the name of the trust.

Prepackaged will and trust software

Using prepackaged will and trust software may be affordable, but it can have costly repercussions. One of the problems with using prepackaged will and trust software is that there is little assistance with funding the trust. If an asset is not properly placed in the trust, then the heirs may require the assistance of an attorney to place the asset into the trust. If that does not work, then the only recourse is probate.

Certain assets should not be placed in the trust for tax reasons. Another drawback of prepackaged wills and trusts is that they are not usually tailored to the specific needs of the client.

We endeavor to discuss the particulars of each estate plan in order to tailor it to the specific needs of each client. We have found that poorly drafted estate plans create conflict and end up costing far more than an attorney-prepared estate plan would cost.

Types of Trusts

Revocable Living Trust

Many estate plans consist of a Revocable Living Trust (sometimes referred to as a “Family Trust”) during the lifetime of the individual client. In most cases, the Revocable Living Trust terminates after the death of the creator of the trust when the assets are distributed to the specified beneficiaries.

Often, additional trusts may be created upon the death of the creator. For some married couples, an estate plan may provide that upon the death of the first spouse, the revocable trust is divided into new trusts, which are known as a Survivor’s Trust, an Exemption Trust (also know as a Bypass of “B” Trust), a Marital Trust (also known as a “QTIP” Trust), and a Disclaimer Trust.

A revocable trust can be changed during your lifetime through amendments to the original trust, and it can also be revoked.

In other cases, however, the creator of the trust may decide not to leave assets outright to a beneficiary. A beneficiary may be immature, have special needs, have addiction or mental health issues, or be too young to receive a substantial distribution of cash. In such cases, the estate planning specialist uses a variety of trusts to manage the assets for the individual beneficiary: a Discretionary Trust, a Special Needs Trust, a Trust for Minors, or an IRA Designated Beneficiary Trust.

For individuals with high net worth, the Revocable Living Trust may also create, upon the death of the trust creator, a special, irrevocable Generation Skipping Transfer Trust for the benefit of a beneficiary.

Irrevocable Trust

An irrevocable trust cannot be revoked or amended. It usually includes an initial, completed transfer of property for the benefit of a third party (not the person who established the trust), and depending on its purpose, it requires the trustee to be someone other the person who established it. Irrevocable trusts are often used by high net-worth individuals or for some Special Needs Trusts.

Special Needs Trust

A Special Needs Trust provides funds for a disabled person who is receiving public benefits and would be disqualified from continuing to receive those benefits under a regular trust or gift of property.

Trusts for Pets

Animal guardians are often concerned about the welfare and ongoing care of dogs, cats, horses, and other pets or domestic animals upon the death of the guardian. A trust for pets allows an animal guardian to set aside money to ensure care for the animal(s) after the guardian’s death.

Advantages and Disadvantages of Using a Trust

A trust has several advantages and disadvantages compared to a will:

  • Trusts avoid probate, thus bypassing the court and sometimes resulting in much shorter periods of administration. Wills, on the other hand, are subject to probate.
  • The probate process assures that unknown creditors won’t come out of the woodworks in the future whereas a trust administration requires affirmative action to gain this protection.
  • Trusts may be significantly less expensive to administer than probate estates. However, the clock is always running on the attorneys’ hourly fees in trust administration. If the administration is complex, if the trustee makes mistakes, or if other situations arise, the attorneys’ fees can mount up and exceed those that would be set in a probated estate.
  • Trusts provide for management of your assets during your lifetime if you become disabled and are unable to care for yourself. This can help avoid conservatorship, which is costly and involves court supervision.
  • Trusts are private documents. Probated wills, on the other hand, are public record, which can be viewed by anyone. A public record of a probated will lists all of the property.
  • Sometimes trustees, knowing or believing that their actions are not supervised, exceed their authority. This may lead to suspicions and accusations of illegal or unethical activities and legal conflicts.
  • Probate assures that the administration of the estate is monitored by the court and may reduce the risk of inappropriate actions by the person(s) administering the estate.
  • A trust provides many choices and can be constructed for almost any situation, as can a will.

Our office provides legal assistance with setting up all types of trusts. To learn more, please contact us.