You’ve probably heard the term ‘trust fund’ but do you know what a trust does? More importantly, do you know how trusts can benefit you and your loved ones?
A trust is a separate legal entity set up by an individual or business to hold assets, such as cash or real estate, on behalf of that individual or a beneficiary. The person setting up the trust is called the grantor or trustor. A trustee is designated to manage the trust and oversee the assets.
Why would you need a trust in your estate plan?
Trusts can help avoid probate, in some states a lengthy and costly process, protect you in the event you become incapacitated and it can also streamline the distribution of your assets after you’re gone. In short, a trust is one of many methods of estate planning that can give you peace of mind.
While there are several types of trusts, a revocable living trust is the most common type of trust found in an estate plan. Unlike a Will, a trust is created while you’re still alive and can benefit both you and your heirs during your lifetime. To create a revocable living trust, several things must happen:
1. The grantor, the person setting up the trust, establishes and signs the trust agreement.
2. The grantor funds the trust by transferring property and titling it to the trust.
3. Beneficiaries are the grantors of the trust during their lifetimes. Successor beneficiaries are also established (these are typically the heirs to your estate).
4. The trustee is designated to manage the assets. In the case of a revocable living trust, the grantor and the trustee may be the same person.
5. A successor trustee is also named to step in and manage the assets after the trustee/grantor is no longer able or passes away.
6. Upon the death of the grantor, the successor steps in and begins distributing the assets in accordance with the trust agreement. Probate is not necessary since the grantor no longer owns the property.
7. If it is important to continue the trust for the benefit of others the successor trustee may hold these assets, and the trust will continue. On the otherhand, once all the assets have been distributed to the beneficiaries, the trust is dissolved.
To determine if a trust is right for you, consult with a qualified estate planning attorney.