What is a Trust, the Benefits, & How They Work
There are many different kinds of trusts. There are irrevocable trusts, gun trusts, testamentary trusts, and more. All have different uses, but the trust structure most commonly used by estate planning attorneys is the revocable living trust (known as a living trust).
In this article, we will look at revocable living trusts in depth. But first, we’ll tackle what a trust generally is.
In general, what is a trust?
While trusts bring to mind wealthy families and “trust funds,” a trust is just a type of legal arrangement.
With a trust, a person or entity (the trustee) holds and manages assets on behalf of others (beneficiaries), following specific terms and conditions outlined in the trust agreement. A Trust is considered a separate “entity” and is governed by the state laws in which it was formed. Assets can be titled and assigned to the trust.
Think of the trust as both a kind of third-party entity and a rulebook for how assets are to be distributed. You title assets in the name of trust (property, bank accounts, etc.) and the trustee needs to follow and distribute assets according to the rules. In the case of estate planning, these rules are how the trustee must distribute your assets after you pass away.
How revocable living trusts work
In estate planning, revocable living trusts are used primarily for your heirs and loved ones to avoid the costs of probate court when passing down property and assets.
With a revocable living trust, you create a trust where you serve as the trustee. You fund the trust either by 1) titling assets you own to the trust or 2) using beneficiary designations and other legal tools to automatically transfer assets to the trust when you pass away. You control all the assets in the trust and can take them in and out of the trust as you please while you are alive.
In the trust document, you can appoint a successor trustee who takes over once you pass away. And when you pass away, the Trustee must distribute the assets per the rules of the trust.
In plain terms, you create an entity that holds your assets for you, but you also maintain total control over them while you are alive. And once you pass away, a new trustee is automatically appointed according to the rules of the trust. Finally, that trustee must distribute the assets according to your wishes – like in a will.
The benefits of a living trust
The benefits of a properly funded and executed trust are numerous. A trust will help your loved ones avoid probate court, which is expensive and time-consuming. You trust will give you greater control over asset distribution. While a will becomes a public record during probate, a trust is private.
Conclusion
Trusts are useful tools for estate planning. For most estate plans, the revocable living trust is the preferred way to leave assets to the next generation.
To decide if a trust is right for your estate plan, call or contact us at Greenline Law.