There are as many different types of trusts that may be used for different goals. First, let’s cover some basic terminology:
- A Trust is a contract between a Trustmaker, a Trustee, and the Beneficiaries.
- The Trustmaker (also sometimes referred to as the grantor, donor, or settlor) is the person who creates the trust instructions and transfers property to the trust.
- The Trustee is the person who administers the trust according to the instructions provided in the trust document.
- The Beneficiary is the person or entity who benefits from, or will benefit from, the Trust.
- There may be more than one Trustmaker, Trustee, or Beneficiary of a Trust and the same individual may serve in more than one role. For example, the Trustmaker may also appoint himself or herself as the initial Trustee of the Trust.
Trusts can be used for a variety of purposes, such as:
- Providing for the future management of assets if you should become incapacitated.
- To avoid probate upon your death.
- To provide for the management of assets on behalf of a young or financially irresponsible beneficiary.
- To provide for the management of an asset that is to be shared among multiple beneficiaries such as a family vacation home.
- To limit a beneficiary’s direct access to assets, particularly if the beneficiary is a big spender, has a substance abuse problem, or other similar concern.
- To protect assets from future lawsuits, creditors, or divorce.
- To reduce income or capital gains taxes.
- To reduce estate or gift taxes.
Trusts are not one-size-fits-all. Trusts must be customized to carry out the individual Trustmaker’s wishes.
The formal name for a Will is a Last Will and Testament. The term “Testamentary Trust” is generally used to refer to a Trust that is written into a Will and does not take effect until after the Trustmaker dies. For example, if you have minor children, you might specify that if your children are still below age 25 when you die, the assets of your estate should be held in trust for your children. You can amend or revoke a Testamentary Trust by changing your Will. However, after your death, a Testamentary Trust usually becomes irrevocable (see below).
Our Heir Safeguard Testamentary Trusts are a popular tool for leaving assets to beneficiaries protected from future lawsuits, creditors, or divorce.
Revocable Living Trust
A Living Trust is a Trust established by the Trustmaker that becomes effective while the Trustmaker is living. A Revocable Living Trust is a Living Trust in which the Trustmaker has retained the power to modify or revoke the Trust at any time.
Revocable Living Trusts are a common estate planning tool for avoiding probate. A Revocable Living Trust may also provide several other benefits such as leaving things to your beneficiaries protected in the event that your spouse remarries, or protecting your beneficiaries from future lawsuits, creditors, or divorce.
Many people think that an Irrevocable Trust is a trust that cannot be changed or modified, but this is wrong. An Irrevocable Trust is a trust that contains at least one provision that the Trustmaker does not have the power to modify by himself. It’s possible that the Trustmaker may have retained several powers including the power to change the beneficiaries of the Trust.
As stated above, a Testamentary Trust generally becomes irrevocable after the Trustmaker’s death. In certain circumstances, an Irrevocable Trust may still be modified by court order or by following specific provisions under the Uniform Trust Code. Such irrevocable trusts are a popular tool for leaving assets to a beneficiary protected from financial immaturity or irresponsibility, or future lawsuits, creditors, or divorce.
An Irrevocable Living Trust refers to an Irrevocable Trust created while the Trustmaker is living. The most common reasons for using an Irrevocable Living Trust include asset protection and tax planning.
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