Properly drawn trusts can save you and your family time, trouble, and money. These laudable objectives can be achieved only with the assistance of an experienced attorney who specializes in carefully drafting, planning, and executing strategies and techniques in estate planning.
By creating one or more trusts, portions of an estate can be transferred in a contractual manner to others in a way that avoids probate and may reduce or eliminate the federal estate tax. A trust is a legal arrangement between you as the grantor or creator of the trust and the trustee, the person designated to control and manage any assets in the trust. The agreement requires the trustee to faithfully and wisely manage and administer the assets to the benefit of the grantor and others. Trusts can be established to take effect during the grantor’s life as well as upon his or her death. People who should consider setting up a trust include those who have complex estates, hold relatively few liquid assets, desire privacy for their heirs, fear a battle over the provisions of a will, or live in a state with high probate costs or cumbersome probate procedures. Trusts may be created to safeguard the inheritances of survivors, reduce estate taxes, fund a child’s education, provide the down payment on someone’s home, provide financial assistance for minor children, manage property for young children or disabled elders, and provide income for future generations.
By creating one or more trusts, portions of an estate can be transferred in a contractual manner to others in a way that avoids probate and may reduce or eliminate the federal estate tax. A trust is a legal arrangement between you as the grantor or creator of the trust and the trustee, the person designated to control and manage any assets in the trust. The agreement requires the trustee to faithfully and wisely manage and administer the assets to the benefit of the grantor and others. Trusts can be established to take effect during the grantor’s life as well as upon his or her death. People who should consider setting up a trust include those who have complex estates, hold relatively few liquid assets, desire privacy for their heirs, fear a battle over the provisions of a will, or live in a state with high probate costs or cumbersome probate procedures. Trusts may be created to safeguard the inheritances of survivors, reduce estate taxes, fund a child’s education, provide the down payment on someone’s home, provide financial assistance for minor children, manage property for young children or disabled elders, and provide income for future generations.
Some of the terms associated with trusts are as follows:
- Grantor: The person who makes a grant of assets to establish a trust. Also called the settler, donor, or trustor.
- Trustee: The person or corporation to whom the property is entrusted to manage for the use and benefit of the beneficiary or beneficiaries.
- Corpus: The assets put into a trust. Also called the trust estate or fund.
- Beneficiary: The person for whose benefit a trust is created. Also called the donee
- Remainder beneficiaries: The parties named in the trust who are to receive the corpus upon termination of the trust agreement.
Living Trusts
Trusts fall into two broad categories: (1) living trusts and (2) testamentary trusts that go into effect upon death. Revocable Living Trusts. A revocable living trust is used to protect and manage a person’s assets. The person creating the trust maintains the right to change its terms or cancel the trust at any time, for any reason, during his or her lifetime. Thus, the grantor retains control over the assets for as long as he or she lives. Revocable living trusts often establish the grantor as the trustee. A revocable living trust can provide for the orderly management and distribution of assets if the grantor becomes incapacitated or incompetent. A new trustee can easily be named. A revocable living trust operates much like a will and can prove difficult to contest. Its assets stay in the estate of the grantor.
Irrevocable Living Trusts An irrevocable living trust is an arrangement in which the grantor relinquishes ownership and control of property. Usually this involves a gift of the property to the trust. It cannot be changed or undone by the grantor during his or her lifetime. The grantor gives up three key rights under an irrevocable living trust: (1) control of the property, (2) change of the beneficiaries, and (3) change of the trustees. Because irrevocable trusts are generally considered separate tax entities, the trust pays any income taxes due. The assets in the trust bypass probate; however, transfers to a trust made within three years of death may be brought back into the decedent’s estate for tax purposes.
Testamentary Trusts
The second broad category of trusts used in connection with estate planning comprises testamentary trusts. A testamentary trust becomes effective upon the death of the grantor according to the terms of the grantor’s will or a revocable living trust. Such trusts can be designed to provide money or asset management after the grantor’s death, to provide income for a surviving spouse and children, and to give assets to grandchildren or great-grandchildren while providing income from the assets to the surviving spouse and children, among other things.
Trusts fall into two broad categories: (1) living trusts and (2) testamentary trusts that go into effect upon death. Revocable Living Trusts. A revocable living trust is used to protect and manage a person’s assets. The person creating the trust maintains the right to change its terms or cancel the trust at any time, for any reason, during his or her lifetime. Thus, the grantor retains control over the assets for as long as he or she lives. Revocable living trusts often establish the grantor as the trustee. A revocable living trust can provide for the orderly management and distribution of assets if the grantor becomes incapacitated or incompetent. A new trustee can easily be named. A revocable living trust operates much like a will and can prove difficult to contest. Its assets stay in the estate of the grantor.
Irrevocable Living Trusts An irrevocable living trust is an arrangement in which the grantor relinquishes ownership and control of property. Usually this involves a gift of the property to the trust. It cannot be changed or undone by the grantor during his or her lifetime. The grantor gives up three key rights under an irrevocable living trust: (1) control of the property, (2) change of the beneficiaries, and (3) change of the trustees. Because irrevocable trusts are generally considered separate tax entities, the trust pays any income taxes due. The assets in the trust bypass probate; however, transfers to a trust made within three years of death may be brought back into the decedent’s estate for tax purposes.
Testamentary Trusts
The second broad category of trusts used in connection with estate planning comprises testamentary trusts. A testamentary trust becomes effective upon the death of the grantor according to the terms of the grantor’s will or a revocable living trust. Such trusts can be designed to provide money or asset management after the grantor’s death, to provide income for a surviving spouse and children, and to give assets to grandchildren or great-grandchildren while providing income from the assets to the surviving spouse and children, among other things.
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