So the kids are back in school and we don't want to fall behind. Here's the second installment of our back to school series -
"Understanding Trusts"
Introduction: A trust is an separate entity that holds assets for the benefit of
named persons. The person who creates the trust is the
"Grantor" (also called Trustor, Creator or Settlor). The person(s) who benefits from the trust are the
"Beneficiaries". The trust itself is a document that often looks and feels like a will. The difference is that a trust actually owns assets which are managed by the
"Trustee". Many kinds of trusts: Most of the confusion arises because there are
many different "flavors" of trusts: meaning that there are many different types of trusts and reasons, purposes and goals for a trust. If a person tells me they have a "trust" it is like telling me they have "wheels". I don't know about the wheels (car, motorcycle, trust, bicycle, van, scooter, wagon etc.) and the purpose of the wheels (work, exercise, transportation, play, hauling etc.).
Revocable Living Trust:
That said, most people are familiar with one kind of trust called the
Revocable Living (Intervivos) Trust. (RLT). It works like this:
� The Grantors (Mom and Dad) create the trust making themselves as beneficiary,
� They title their assets in the trust so that the trust is the technical "owner",
� Mom and Dad are their own Trustee, maintaining control during their lifetime,
� At death, the Successor Trustees (usually the children) distribute the assets to the beneficiaries (usually the same children).
Among its benefits, a RLT provides for orderly distribution of assets on death and
provides a vehicle for managing assets during the incapacity of the grantor. It is
generally thought of as a will substitute which avoids probate at death. A RLT is
relatively inexpensive and easy to set up and maintain.
A RLT is not an asset protection or tax saving tool. Different or additional trusts are used to accomplish these goals.
Other types of trusts: Therefore, whether done within the context of a living trust or in a different trust document altogether, trusts can accomplish a myriad of good results. For example trusts can:
� provide asset protection from future nursing home costs.
� reduce the likelihood of will contests.
� coordinate distribution of assets through one vehicle.
� avoid probate (and double probate with out of state real estate).
� provide maximum privacy.
� prevents court control of inheritance by minors.
� save on estate taxes.
� provide for distribution to beneficiaries at specified ages or over a period of time or for retirement.
� provide for assets to be held for beneficiaries with special needs.
� provide for assets to be held for beneficiaries who have creditors or who cannot handle money.
� provide for education of grandchildren.
� provide for a second spouse or partner.
� provide for pets.
� protect assets for Medicaid eligibility.
Conclusion: The use of trusts is not new . . . far from it. Trust laws and its foundation go back centuries. What is new is that trusts have found a home with the middle class. The middle class has discovered that trusts can provide solutions to common estate planning, asset protection and elder law concerns. I am happy to say that it is common for my clients to embrace these very versatile tools.
