Our Trusts Practice
Trust practice includes, but is not limited to:
- Revocable and Irrevocable Living Trusts
- Testamentary Trusts
- Charitable Trusts
- Spendthrift Trusts
- Estate Tax Planning Trusts
- Insurance Trusts
- Discretionary Trusts
- Support Trusts
- Special Needs Trusts
Common Trusts Questions
What is a trust?
A trust is a legal relationship in which one person, the trustee, holds and manages property for the benefit of another, the beneficiary. The property can be any kind of real or personal property–money, real estate, stocks, bonds, collections, business interests, personal possessions and automobiles. Trusts are often established by a person for his/her benefit or the benefit of another. Trusts generally involve at least three parties: the grantor is the person who creates the trust (a/k/a settlor or donor), the trustee is the person who holds and manages the property for the benefit of the grantor and other beneficiaries, and the beneficiary(ies) who is the person(s) entitled to the benefits. Essentially a trust is a contract between the grantor, trustee and beneficiaries whereby the grantor gives the trustee assets to hold, manage and distribute per the terms of the trust.
By adding property to a trust you transfer property from your personal ownership to the trustee who holds the property for you. The trustee has legal title to the trust property, but trustees are not the full owners of the property. Trustees have a legal duty to use the property as provided in the trust agreement and permitted by law. The beneficiaries retain what is known as equitable title, the right to benefit from the property as specified in the trust.
In most revocable living trusts the grantor is also the trustee and the initial beneficiary. As trustee and beneficiary the grantor retains the same rights of ownership he/she had when the assets were still in his/her name. A grantor who is also trustee and initial beneficiary can buy anything and add it to the trust, sell anything out of the trust, and give trust property to whomever they wish.
What are some of the different types of trusts?
Testamentary trusts – are set up, with or without tax-saving provisions, in wills and take effect only after the death of the Grantor.
Living trusts – are set up, with or without tax-saving provisions, and enable you to put your assets in trust while you are still alive. You can wear all the hats–grantor, trustee, and beneficiary–or have someone else be trustee and have other beneficiaries.
Revocable trusts – are trusts that can be changed, or even terminated, at any time by the Grantor.
Irrevocable trusts- trusts cannot be changed or terminated before the time specified in the trust.
Charitable trusts – are created to support some charitable purpose. Often these trusts will make an annual gift to a worthy cause of your choosing, simultaneously helping good causes and reducing the taxes on your estate.
Discretionary trusts – permit the trustee to distribute income and principal among various beneficiaries or to control the disbursements to a single beneficiary, as he or she sees fit.
Insurance trusts – are tax-saving trusts in which trust assets are used to buy a life insurance policy whose proceeds benefit the Grantor’s beneficiaries.
Spendthrift trusts – trusts can be set up for people whom the grantor believes wouldn’t be able to manage their own affairs–like an extravagant relative, or someone who’s mentally incompetent. They may also be useful for beneficiaries who need protection from creditors.
Support trusts – direct the trustee to spend only as much income and principal as may be needed for the education and support of the beneficiary.
Special Needs trusts – allow you to give assets to a person on public benefits without the person losing their benefits.
What are some of the benefits of a living trust?
The big advantage to making a living trust is that property left through the trust doesn’t have to go through probate court. In a nutshell, probate is the court-supervised process of paying your debts and distributing your property to the people who inherit it. The average probate drags on for months or years before the heirs receive anything. And by that time, there’s less for them to receive. In many cases, anywhere from 10% to 20% of the property has been consumed by lawyer and court fees.
Property you transfer into a living trust before your death doesn’t go through probate. The successor trustee (the person you appoint to handle the trust after your death) simply transfers ownership to the beneficiaries you named in the trust. In some cases the whole process takes only a few weeks, and there are no lawyer or court fees to pay. When all of the property has been transferred to the beneficiaries, the living trust ceases to exist.
Living trusts offer many benefits in addition to probate avoidance some of which are:
- Manage assets efficiently if you should die and your beneficiaries are minor children or others not up to the responsibility of handling the estate;
- Protect your privacy (unlike a will, a trust is confidential);
- Depending on how it is written, and on state law, a trust can protect your assets by reducing taxes;
- The trustee can manage property for you while you’re alive, providing a way to care for you if you should become disabled;
- Trusts are generally more difficult to contest than wills;
- Trusts can be flexible. They can be drafted to provide for a disabled family member, make sure that a child uses the money for education before receiving the remainder, protect a family member’s interest from creditors, etc;
- Depending on how it is written, and on state law, a trust can protect the inheritance of your children from a prior marriage while at the same time provide for the support of your current spouse;
- Trusts can be set up in divorce to provide for the education of the couple’s children.
If I make a living trust, do I still need a will?
Yes, you need what is called a Pour Over Will and here’s why:
First, a pour over will is an essential back-up device for property that you don’t transfer to yourself as trustee. For example, if you acquire property after you fund your trust but before you die, you may not think to transfer ownership of it to your trust which means that it won’t pass under the terms of the trust document. In the pour over will, you can include a clause that transfers the probate estate assets to your trust to be distributed by the trustee per the terms of the trust.
If you don’t have a will, any property that isn’t transferred by your living trust or other probate-avoidance device (such as joint tenancy) will go to your closest relatives in an order determined by state law. These laws may not distribute property in the way you would have chosen.
Second, if you have minor children, you will need a will in order to appoint a guardian for the minor children. If you don’t appoint a guardian in your will, in the event that you and the children’s other parent are deceased, the court will appoint a guardian of its own choosing and the guardian may not be the person you would have chosen to raise your children..
What is a Testamentary Trust?
Whereas a living trust is created and funded during your lifetime a testamentary trust is a trust that is not created and funded until after you die. It is usually written into your Last Will and Testament. Testamentary trusts are most often written into wills in order to appoint a trustee to manage the inheritances of grantor’s young adult or minor children until they reach an age where they can handle the assets on their own. Usually the trustee relationship is in effect until the child reaches the age of 25 or has graduated from college. These terms, however, can be flexible and customized to meet the parent’s wishes.