A trust is a legal entity designed to hold property or assets for another person, group, or organization. Trusts generally involve three parties, the grantor, the beneficiary, and the trustee. The grantor is the person who is creating the trust, contributes the assets, and determines how the trust should be managed. The grantor thus sets the terms as to how the assets owned by the trust will be used, and when and to whom they will be disbursed. For example, a grantor could make a gift for a child or a charitable organization, to take effect upon a certain date later in time. The beneficiary is the individual, group, or organization the trust fund has been established for. The trustee is a neutral third party entrusted to manage trust. The grantor most frequently also serves as the trustee, during the period they are alive and competent.
Many people create a trust to avoid probate. If you draft a will, it will need to be administered after your passing by the local Court system, which is the process known as probate. While probate can be relatively time efficient and low cost, it can also generate some delays and additional fees to the Court or your attorneys, in many instances.
Further, a trust is the only method to control a gift after your passing. With a will, your beneficiary is often given a gift outright, which may not be appropriate. Using a trust, you can control how and when a beneficiary receives a gift. For example, if you have a younger beneficiary, you are able to make a gift to them in installments over time, at certain ages.
A trust comes in two varieties: revocable andirrevocable. The main difference between these trusts isthat a revocable trust can be changed or terminated by the grantor, and with an irrevocable trust, the grantor cannot make changes without the consent of the beneficiaries. There are several benefits and drawbacks for each, which need to be carefully explored with a competent attorney.
Revocable Trust: This can be a good option if you want to establish a trust, yet still maintain control over your estate and assets while you are alive. While this trust can be changed during at any given time you are still living and of sound mind, upon death, this trust automatically becomes irrevocable and cannot be changed. Even if you become incapacitated, as long as this trust was funded, the assets within it will continue to be managed without interruption.
Irrevocable Trust:Assets put into this style of trust may not add value to your estate, and thus, may be beneficial if your estate is valued more than the current federal estate tax exemption amount. This type of trustmay also provide protection of assets from judgments and creditors, whereas a revocable trust likely will not.
HOW IS A TRUST DIFFERENT THAN A WILL?
The difference between a will and a trust is when they kick into action. A will lays out your wishes for after you die and has no effect until you pass. A revocable trust becomes effective immediately. While you are alive you can be in full charge of your trust, and when you become incapacitated or die, the person you appoint as the successor trustee can easily step in and handle your affairs exactly as you have laid out in the document.
If you only have a will when you die, your family will go the probate process to have the right to follow what you laid out in your will, which can be time-consuming and costly. A will is also public. When you die with only a will, that document must be filed with the court and can be accessed by anyone.
Having a trust speeds up the probate process even more so than just having a will because a trust does not need court approval. Everything stays private, and your successor trustee can take over its management immediately upon your death.