What Is A Trust In Estate Planning?
A trust in estate planning is a complete estate plan document that, when irrevocable, essentially becomes its own living being upon your death. A trust is used to distribute your assets how you should so choose, including delaying distribution to minor children until such a time that they are ready to have that distribution or delaying distribution to someone who may actually be harmed by that distribution. For example, if someone is receiving assistance because they are disabled, a special needs trust could be created as a sub-trust so that person would not lose their assistance. There are many other situations where a person should not receive an outright distribution of their inheritance and trust is the instrument to delay that distribution.
What Benefit Does a Trust Offer? Are There Any Disadvantages To A Trust?
The greatest benefit of a trust is avoiding probate. In addition, a trust allows you to avoid a delay in administering your estate, meaning that you have the advantage of having funds immediately available in order to continue running a business, making mortgage payments, or operating the trust. The only disadvantage to a trust is that if there is going to be litigation, then administering a trust may be a waste of time up to the point that the litigation is initiated. If we are anticipating litigation of the distribution of a decedent’s estate, then we may not recommend trust; instead, we will set up a will so that we can get a court case opened and moving as quickly as possible.
What Components Constitute An Effective Trust?
A trust is a document that controls your estate and is effective only when funded, meaning that the assets which you desire to be administered pursuant to your trust document are retitled in the name of the trust. That would include deeds to real property, savings accounts, checking accounts, and investment accounts. In many cases, the trust is named as the beneficiary of life insurance. Automobile registrations (including registrations for recreational vehicles such as boats and yachts) count only if they are worth over $100,000. Stocks and partnership shares are tricky because you have to have an agreement from the partnership to show that the LLC shares can be put into your trust.
There are three additional major components that make up an effective estate plan. One is called a pour-over will, which is a will that catches any assets that are left outside of the estate and puts them into the trust. The other very important item is a springing durable power of attorney. The purpose of that is to fund the trust with any after-acquired assets, meaning assets acquired after the initial trust funding. If the person creating the trust is incapacitated for some reason, then the person with the power of attorney could collect the assets, place them into the trust, and continue to fund the trust. Finally, an advanced healthcare directive would eliminate the need for a conservatorship in conjunction with the trust if someone should become incapacitated (such as they might from Alzheimer’s or Dementia). At a minimum, an effective Trust must contain the Trust itself, Pour-over Will(s), Trust Transfer Deeds, and other documents funding the Trust.
Can I Or Should I Have More Than One Trust?
Whether or not someone should have more than one trust depends on their particular circumstances. When we deal with blended families, we will sometimes create multiple trusts. In some cases, you may be the beneficiary of a trust and it may exist beyond your lifetime, so you would have two trusts. However, we can typically do everything within one trust, which makes more sense because it is easier to administer that way. If you only have one trust, then it is easier to ensure that everything you have is funded into that trust.
Are The Assets Held In A Trust Completely Protected From Creditors?
Usually, they are not completely protected. If the Trust contains a spendthrift provision the most that is available to creditors is twenty-five percent of the principle due to the beneficiary and any amounts currently due and payable. For a self-settled trust, the assets in a revocable trust are not protected from creditors, but the assets in an irrevocable trust are because you no longer own those assets; you are merely the beneficiary of the trust and reap the benefit of the items that are in it. However, you can only expend what’s in the trust according to the document that creates the irrevocable trust.
The person who creates a trust is called the settlor. When the settlor dies and the trust is being administered for the beneficiaries, and if there is a proper spendthrift clause, then those assets are protected from the beneficiaries’ creditors. Creditors have access to up to twenty-five percent of what the beneficiary would receive, plus any income as it’s coming out of the trust.
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