A trust can be quite complicated. That is why you need good legal representation in order to use one properly, according to the Pittsburgh Post-Gazette “Do I need a trust?”
Trusts are created using a tailored trust document drafted by a knowledgeable estate planning attorney. The trust can be designed to take effect while the Settlor is alive — referred to as inter vivos — or after the person’s death — testamentary.
A simple definition of a trust is a three-party fiduciary relationship between the person who created the trust and the fiduciary of the trust for the benefit of a third party. The person who created the trust is known as the “Settlor” or “Grantor.” The fiduciary, known as the “Trustee,” is the person or organization with the authority to handle the asset(s). The trustee owes the duty of good faith and trust to the third party, known as the “Beneficiary.”
The document can be irrevocable, meaning it can never be changed, or revocable, which means it can change from one type of trust to another, under certain circumstances.
Here are a few reasons for using a trust:
- Consolidating assets during lifetime and for ease of management upon disability or death.
- Avoiding probate so assets can be transferred with privacy.
- Protecting a beneficiary with cognitive or physical disabilities.
- Setting forth the rules of use for a jointly shared asset, like a family vacation home.
- Tax planning reasons, especially when IRAs valued at more than $250,000 are being transferred to the next generation.
- Planning for death, disability, divorce or bankruptcy.
There is considerable misinformation about trusts and how they are used. Let’s debunk a few myths:
An irrevocable trust means I can’t ever change anything. Ever. Even with an irrevocable trust, the settlor typically reserves options to control trust assets. It depends upon how the trust is prepared. That may include, depending upon the state, the right to receive distributions of principal and income, the right to distribute money from the trust to third parties at any time and the right to buy and sell real estate owned by the trust, among others. Depending upon where you live, you may be able to “decant” a trust into another trust. Ask your estate planning attorney if this is an option in your state.
I don’t have enough assets to need a trust. This is not necessarily so. Many of today’s retirees have six figure retirement accounts, while their parents and grandparents didn’t usually have that much saved. They had pensions. Today’s worker owns more assets with complex tax issues.
An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and may include a trust.
Reference: Pittsburgh Post-Gazette (Jan. 28, 2019) “Do I need a trust?”