The words “trust” or “trust funds” most often conjure images of wealthy families passing money down from generation to generation. Most people find it difficult to adequately define what a trust is outside of the aforementioned image.
The reality is that trusts are not some magical bank account available only to the rich and famous. In fact, trusts can be utilized by families from any economic background. Working with an Orange County trust attorney is one of the best ways to take advantage of trusts as part of your estate plan.
What is a trust?
A trust holds the assets of the trust creator in a trust for his or her benefit during the individual’s lifetime. Upon the death of the trust creator, the assets are transferred to designated beneficiaries. The person chosen by the trust creator to see that assets are property transferred is called the successor trustee. In other words, a trust is kind of like a bank account for your assets. After your death or incapacitation, those assets are transferred to a person of your choosing.
There are a variety of types of trusts allowing for almost endless options. Here are the most common types of trusts:
As previously described, a living trust provides someone, the trustor, to pass on assets and property on to a beneficiary upon their death. If the trust is funded, it often avoids going to probate court. A living trust is created while the trustor is alive.
Often called a will trust, a testamentary trust is an agreement made for the benefit of a beneficiary once the trustor has died, including details on how assets are endowed. This type of trust is controlled by an executor who managed the trust for the trustor’s decedents. Testamentary trusts cannot be changed or altered once created.
A revocable trust is created during the trustor’s lifetime but can be changed, updated, or canceled entirely by the trustor. A revocable trust is most often used to avoid assets going into probate court.
An irrevocable trust is one that cannot be changed during the trustor’s lifetime and cannot be revoked after the trustor’s death. Irrevocable trusts are the most common since they transfer assets out of the trustor’s name and into the beneficiary’s name.
Funded or Unfunded Trust
These are agreements that either have funds or assets put into them or not. These trusts can be funded during the trustor’s life or after their death.
Credit Shelter Trust
Often called a bypass or family trust, a credit shelter trust allows a beneficiary to receive assets or funds up to the estate-tax exemption. This allows the trustor to give a spouse or family member the remainder of the estate tax-free. These kinds of trusts are trendy since they keep an estate tax-free, even if it grows in size.
An insurance trust allows the trustor to combine his or her life insurance policy within the trust, keeping it free from taxation. Insurance trusts cannot be changed but will enable the life policy to help pay for post-death expenses on the estate.
Qualified Terminable Interest Property Trust
This trust gives assets to different beneficiaries at different times. For example, assets might go to a spouse after the trustor’s death. When the spouse dies, the remainder of the trust will go to the children.
When a trustor names a charity or non-profit organization as a beneficiary, it is called a charitable trust. Most often, this trust is built up over the trustor’s lifetime and then doled out to a charity. A charitable trust can be part of other kinds of trusts as a way to give some of the trustor’s assets to charity.
A blind trust is handled solely by the trustees without the beneficiaries’ knowledge. This kind of trust is most often used to avoid conflicts between beneficiaries.
What are the benefits of using a trust?
When working with your estate planning attorney, you may decide that a trust is a good option for your estate plan. Here are some of the top reasons how your plan may benefit:
1. Avoid Probate
Probate is the court-controlled process of distributing a deceased person’s assets and property. Depending on the estate, assets, and individual involved, probate can be a time-consuming and expensive process. The end result is that money from the estate is used to pay the court costs.
Using a trust can help avoid probate. The successor trustee distributes assets according to the trustor’s instructions without needing court intervention. This results in a faster distribution without additional expenses to the estate.
2. Saves Money
While creating a trust tends to be more expensive than drafting a will, it can save more money in the long run. Whether the savings come from preventing going to probate court, avoiding certain taxes, or simply transferring faster, it is often worth the extra fees.
3. Protects Privacy
By avoiding the probate process, only the parties involved know the details. The probate court and a will are part of the public record. Anyone can perform a search to learn the full details of your estate.
4. Helps in the case of incapacitation
If the trustor becomes incapacitated, the person chosen as the successor trustee can manage the trustor’s affairs right away. This plan avoids having a court to make decisions regarding your estate.
5. Gives peace of Mind
When created correctly, a trust sets a clear plan regarding what happens to your assets. You can provide care for a loved one or protect assets from unsavory people. Knowing that your estate will be handled exactly the way you want provides comfort. More importantly, your loved ones don’t have to argue about or guess what you would have wanted as it is already laid out for them.
If you’ve decided that setting up a trust is the right decision for your estate, start by taking an inventory of your assets. Consider who you want to inherit what and who would be best suited to manage your trust.
The process of setting up a trust doesn’t have to be complicated, and you don’t have to go it alone. If you live in the area, seek the help of an experienced trust attorney in Orange County, CA. There is no better time to start planning your future than today.