Estate planning can be confusing for people who have no prior experience dealing with them. The terms alone are enough to send your head spinning, like an estate lawyer from a local law firm such as William B. Moore would advise. Read the information below for an overview of estate planning basics.
What is a Trust?
A trust is a relationship that involves three parties, the trustor, trustee and beneficiary. This is a fiduciary relationship in which the trustor grants the trustee permission to hold title to assets for the beneficiary. They are created to legally protect the trustor’s assets and ensure that they are distributed in accordance with the trustor’s wishes. Additionally, trusts reduce paperwork and save time and can reduce estate or inheritance taxes in certain instances.
What Are the Types of Trusts?
There are six general categories of trusts: living or testamentary, funded or unfunded, revocable or irrevocable. A living trust documents provisions for a person’s assets to be entered into a trust for a person’s use during their lifetime. After the trustor’s death, the assets are transferred to the beneficiary. The trustor will likely name a successor trustee to assist with the transfer of the assets.
Testamentary trusts detail the distribution of a person’s assets upon their death.
Revocable trusts can be altered or ended by the trustor while he or she is living. Irrevocable trusts, on the other hand, cannot be altered once established or in some cases cannot be altered once the trustor has passed away.
Living trusts can be made to be either revocable or irrevocable. However, testamentary trusts are always irrevocable. Typically irrevocable trusts are most beneficial because they minimize taxes since the assets in the trust have been removed from the trustor’s possession.
What Are the Benefits of Trusts?
Trusts are utilized to outline the management and distribution of a person’s money and assets. They can be used during the person’s lifetime or after they have passed away. Trusts can be beneficial by avoiding hefty estate and inheritance taxes and can specify inheritance arrangements for beneficiaries. Further, in some cases trusts protect people’s assets from being seized by creditors.
Trusts can be useful for underaged or mentally disabled beneficiaries. If and when the beneficiary is proven fit to manage his or her own affairs, he or she may take possession of the trust.
Call an estate lawyer today to help you determine whether a trust may be beneficial for you and your heirs as you plan your estate.