Trusts

living trustTrusts are created for a variety of reasons.  The person who creates a trust is called either a “grantor” or a “settlor.”  Trusts typically are used to control the distribution, management and availability of money from one generation to the next.  A trust may be created by provisions in a person’s last will and testament.  A trust which is created by a person’s last will is called a testamentary trust.  Many of the wills I draft for clients contain testamentary trusts.  Clients use testamentary trusts to manage and safeguard money for people who are too young or too financially irresponsible to manage their inheritance.

People may also create trusts that become operational before they die.  A trust which becomes operational before its creator dies is sometimes referred to as a “living trust.”  The typical living trust often names the settlor as both a trustee and beneficiary for as long as the settlor lives.  Most living trusts have provisions for a successor trustee should the settlor trustee die or become unable to perform his or her duties.

Example: Suppose you are incapacitated by a stroke after you have created a living trust in which you are both the trustee and the main beneficiary for as long as you live.  Because you are incapacitated, it is unlikely that you are able to take care of financial obligations like paying routine bills.   Should such an unfortunate occurrence befall you, your successor trustee will take over the living trust and see that the trust continues to be managed for your benefit.   If the trust was properly constructed and funded, the successor trustee does not need to go to court to seek the appointment of a guardianship over those assets already titled to the trust.  Since the trust has already authorized your successor trustee to take over the role as trustee in the event of your incapacity, the successor trustee now controls the assets of the trust and may see that your financial obligations are satisfied and see that your needs are met.

Another reason that living trusts are popular is because assets in the trust are able to pass to the beneficiaries without going through probate.  Probate is the judicial process of re-titling a decedent’s assets to the heirs of the decedent.  The assets in a trust have already been re-titled out of the decedent’s name. Therefore, probate is not necessary for those trust assets.

Some of the positive aspects about living trusts include the fact they can be made revocable at the time of their creation.  That is to say the settlor can modify or cancel the trust at the settlor’s discretion.  Additionally, your revocable trust does not need a separate tax identification number.  It is not necessary to file a separate tax return for a revocable trust.

There are other estate planning reasons for creating a living trust.  Many people with a high net worth (typically over $1,000,000.00) use trusts to shelter assets from federal estate taxes that may otherwise be owed upon their death.  The technicalities and complexities of these  estate tax shelter trusts require in-depth explanations beyond the scope of our web site’s purpose.  Should you retain our law firm, I will determine during the client interview phase if this type of sophisticated tax planning trust is appropriate for your situation.

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