Many people do not have a good understanding of what a trust is; or how it is different from a will. There are many different types of trusts but the main purpose and benefit of having a trust is to keep a person’s estate out of probate after they have died. The biggest difference between a trust and a will is that upon death the property will not enter probate.
Even with a will in place, property has to go through probate, the court system, to determine all the different legalities of the will and how the properties are being dispersed. During the process of probate a lot of the estate will be consumed by taxes and sometimes by attorneys. By creating a trust, you transfer property, assets, securities, bank accounts and real estate to someone you “trust” while you are still living and it will carry over when you die.
Living Trust vs. Testamentary Trust
Trusts take many different forms and there can be many different wording that is used to create a trust. A living trust is developed and installed while a person is still living. A testamentary trust is one which will be carried out after the individual has died. They will give their instructions before their passing so that they can be carried out according to their desires after they die. In this case, a trustee is appointed so that they can carry out the instructions and assets be given to the beneficiaries. A living trust is better than a testamentary trust since the latter will require supervision by a Probate Court. A living trust may be the better option for some situations since it can be funded while the one who created it is still alive.
Revocable vs. Irrevocable Trusts
This is another way to classify trusts: revocable or irrevocable. A revocable trust is one in which the grantor will reserve the right to revoke a trust once it is put into effect. This includes changing any of the provisions or terms of the trust. However, when the grantor relinquishes the right of revoking the trust which is in effect, it is considered an irrevocable trust. In this case the grantor cannot change any portion of the terms or provisions included in the trust.
Who Needs a Trust?
There are specific situations which will require a trust. Since the main benefit of a trust is protecting assets after an individual dies, there are some people that may benefit from creating a trust. It is best to discuss the development of a trust with an attorney who is knowledgeable in estate planning. There are several things to consider when determining if a trust is needed. Those who own property that they do not want to end up in probate may consider creating a trust. If an individual has a net worth of more than $2 million, a trust may be beneficial. A person who wants to pass on their assets to their heirs but wants to make sure that they are not given one lump sum may choose to create a trust so that they can manage how the assets are passed on to their heirs. Those who own property other than just their homes or own a business may benefit from creating a trust. It may also be beneficial for those who share ownership of a business. And those who have a minor child or children, is in a blended family, or are in a second marriage may want to pursue creating a trust to protect their assets. A trust can take one of many forms and help individuals protect their assets.