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What is a Trust?

HandelontheLaw.com Staff Writer

Wednesday, November 20, 2013



What is a Trust?
Living Trust

At some point in your life, you will probably encounter and/or consider creating a “Trust.” A trust is a plan set up by a “grantor” to have a “trustee” hold, control and/or distribute property for the good of a “beneficiary.” Within this legalese-loaded definition: a “grantor” is the person or institution that sets up the plan; the property can be any type of asset; a “trustee” is a person or an organization to which the plan entrusts assets and gives specific duties/powers over those assets; a “beneficiary” is a person or organization that is supposed to benefit from that plan. The term “fiduciary” is used to describe some people, relationships and duties. For several examples: a “fiduciary” – the person/institution entrusted with assets – has a “fiduciary relationship” – a relationship built on trust/confidence – and has “fiduciary duties” – trust-based responsibilities. However, basically “A” entrusts assets to “B” for the benefit of “C.”

That basic plan - “A” entrusts assets to “B” for the benefit of “C” – is used for several reasons, including but not limited to: avoiding the time, expense and public record of probate (the legal process of settling a dead person’s estate); and controlling and protecting wealth by giving very specific instructions about what is held in trust, when it is distributed, how it is distributed and the beneficiaries to whom it is distributed. These benefits and others have encouraged the creation of a variety of trusts, some “revocable” and others “irrevocable.” A “revocable trust” (or a “living trust”) is set up by the grantor to control the assets during his/her lifetime and can be dissolved at the grantor’s discretion. Here, the grantor can name himself/herself trustee and can name another trustee to manage the assets if the grantor dies or becomes somehow incapable of managing the assets. The benefit of a revocable trust is that it can assist in avoiding probate while retaining your control over the assets; however, the drawbacks are that the assets are still treated like your assets and will probably be subject to estate taxes. An “irrevocable trust” essentially means that the grantor hands over the assets to someone else’s control and the trust cannot be changed or dissolved after it is executed. The benefits of an irrevocable trust are protecting assets against judgments against the grantor, saving the assets from tax liabilities connected with the grantor’s assets during his/her lifetime, and saving the assets from estate taxes by keeping them out of the grantor’s estate; however, the drawback is that the grantor permanently loses control over those assets.

Within those broad categories of “revocable” and “irrevocable” trusts, grantors have created many types of trusts for a variety of purposes, including but not limited to: “Testamentary” trusts, via the grantor’s Will; “Charitable Lead” trusts, giving assets to one or more charities and the remainder to other beneficiaries; “Charitable Remainder” trusts, providing for beneficiaries with the remainder to one or more charities; “A” trusts, created for the benefit of surviving spouses but subject to the surviving spouse’s estate; “B” trusts, creating credit shelters by sidestepping the surviving spouse’s estate; “Generation-Skipping” trusts, to distribute assets to grandchildren and/or generations beyond them; and “Qualified Terminable Interest Property” (QTIP) trusts, providing for a surviving spouse and distributing the remainder to other beneficiaries after that spouse’s death. These examples barely scratch the surface of the sometimes dizzying complexity of trusts. Consequently, trusts are best chosen and prepared with the assistance of lawyers who specialize in Wills/Trusts/Probate.

DO’S AND DON’TS


DON’T be intimidated by the process or the people.

DO understand that the basic concept of a trust is: “A” entrusts assets to “B” for the benefit of “C.”

DO understand that trusts can be used to avoid the time, expense and public record of probate.

DO understand that trusts can be used to control and protect wealth by giving very specific instructions about:
a. what is held in trust
b. when it is distributed
c. how it is distributed and
d. the beneficiaries to whom it is distributed.

DO understand that a revocable trust is a dissolvable plan by which the grantor retains control of assets.

DO understand that an irrevocable trust is a permanent plan by which the grantor gives control of assets to others.

DO understand that the legal area of Wills/Trusts/Estates can be so dizzyingly complex that trusts are best chosen and prepared with the assistance of a lawyer who specializes in that area.


By Kathy Catanzarite

[Note from HandelontheLaw.com: This article is to be used as an educational guide only and should not be interpreted as a legal consultation. Readers of this article are advised to seek an attorney if a legal consultation is needed. Laws may vary by state and are subject to change, thus the accuracy of this information cannot be guaranteed. Readers act on this information solely at their own risk. Neither HandelontheLaw.com, or any of its affiliates, shall have any liability stemming from this article.]


Source: Kathy Catanzarite - Handelonthelaw.com Staff Writer

Note from HandelontheLaw.com: This article is to be used as an educational guide only and should not be interpreted as a legal consultation. Readers of this article are advised to seek an attorney if a legal consultation is needed. Laws may vary by state and are subject to change, thus the accuracy of this information can not be guaranteed. Readers act on this information solely at their own risk. Neither the author, handelonthelaw.com, or any of its affiliates shall have any liability stemming from this article.



WILLS/TRUSTS/PROBATE DOS AND DON'TS

 


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