As estate planning attorneys, we know the misconceptions that most people have about trusts. Many people are surprised when we suggest a trust as part of their estate plan. Trusts aren’t just for the wealthy. They can be a useful and important resource management tool for a variety of reasons. If you’re going to use a trust effectively, it’s important to understand how a trust works. Here’s an introduction to trusts from our team of wills and trusts attorneys:
What is a trust?
A trust is a legal entity for the management of assets. A person puts assets in the trust for the benefit of a third party. The trust owns the assets. The person or people who manage the trust make decisions about how to manage the assets, and there can be rules about when and how the trustees distribute trust property to the beneficiaries.
How does a trust work?
A trust works by placing money or property into ownership by the trust. Instead of a person owning the property, the trust owns the property. The trust is set up for a specific purpose. The person who originally owns the property that goes into the trust can be a beneficiary of the trust. A person or people who are in charge of the trust make decisions about when to distribute property to the trust beneficiaries. Each trust has its own rules about who the trust benefits and what kinds of things the trust can provide for.
The trust is its own legal entity. The trust is the owner of the property in the trust. Placing property in a trust can be beneficial for several reasons. First, when you’re using a trust to transfer assets after someone passes away, the property may transfer faster and easier to the third party using a trust than using a traditional will. In addition, when the trust owns the property, instead of an individual owning the property, the property may be out of reach from third-party lawsuits and other claims. Also, when a trust beneficiary has special needs, trust property doesn’t count as the property of the beneficiary so the beneficiary may still qualify for means-tested public assistance programs.
A trust can provide for financial privacy
When a will goes through probate, it becomes a part of the public record. A will is a public proceeding. If a person uses a will to transfer assets, there’s no way to stop anyone from going to court, accessing the court record and sharing it with others. When you have a trust, the terms of the trust may not become public record. There are many reasons that the parties involved in asset management may want financial privacy. Placing property into a trust can provide the privacy that a will cannot provide.
Is a trust a financial investment? What kind of financial return can I expect on a trust?
A trust is not necessarily a financial investment. You can invest the property that’s placed in a trust, but the trust in and of itself isn’t like purchasing an investment. The financial return on the property in a trust depends on the property that’s in the trust and how the trustees choose to invest it.
Each trust is different. Just like other investments, you can evaluate your risks and choose what’s in the best interests of the trust beneficiaries. It’s important to understand the risks associated with any type of investment including investments made with trust property.
Who can be trustee of my trust?
You can name anyone to be the trustee. You can even name yourself the trustee of a trust. Actually, when you’re the person transferring the property and the beneficiary of the trust, naming yourself trustee is the most common choice. When you’re the trustee of your own trust, you retain control over the assets for your lifetime. You have the legal protections of a trust while maintaining control over how you spend the trust assets.
There are also other options for naming a trustee. Managing a trust can be complex. You may consider using a professional trustee. When you choose a professional, they have experience with accounting, taxation and asset investment. You can also name any other party that you like. Multiple parties can even serve as co-trustees. It’s important to consider the skills that you need in a trustee as well as their personal knowledge of the trust beneficiaries and the amount of control that you may want to retain over trust assets.
Not all trusts are created equal
As you consider whether a trust is right for your estate planning, it’s important to understand that there are a variety of kinds of trusts. The kind that you use depends on your assets and your goals. For example, you may create a trust that you can revoke during your lifetime. In other scenarios, it may make the most sense not to reserve any right to revoke the trust. You may use a trust to donate to charity, or you may use a trust in order to protect certain assets from creditors. A special needs trust provides for a loved one with physical, mental or emotional challenges. A spendthrift trust doesn’t allow the trust beneficiary to dissipate assets except under the terms of the trust.
It’s important to consider the needs of the family as you begin to think about your estate plan. Once you know your needs and goals, you can evaluate the different types of trusts. The person who creates the trust has a great deal of control over the terms of the trust. You can work with an experienced trust attorney in order to set up the trust in the best possible way. There are ways you can customize your trust in order to have the maximum benefits for your trust beneficiaries.
Is a trust right for me?
When you’re considering your financial planning, it’s important to understand both the risks and benefits of a trust. A trust is a versatile financial planning tool that can protect your assets and ensure that they’re used for a particular purpose. You can create a trust that’s effective immediately, or you can create a trust that begins in the event of your passing. If you think a trust may be right for you, it’s important to sit down with an experienced trust attorney in order to consider your options. You can explore what a trust can do for you and for your loved ones and create an estate plan that meets all of your goals.