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What Is a Trust and Do I Need One?

Think of a trust as a box, a place where you put your assets before they are released to the people or organizations that you designate to eventually receive them. A trust is a legal entity and so are you. Because you and the trust are separate legal entities, anything you transfer from you to the trust becomes property of the trust. The trust then holds the property for your benefit, or for the benefit of those you designate.

A trust consists of five components:

  1. The grantor, who creates the trust.
  2. The beneficiaries, who receive the benefits (income and/or principal) of the trust. The grantor can also be a beneficiary.
  3. The assets, which are the properties transferred to the trust.
  4. The trustee, who is the person or entity that manages the trust's assets and distributes the property according to terms established by the grantor. The grantor can also be the trustee, at least while the grantor is alive.
  5. Trusts can be set up while you are alive (the legal term for this is intervivos), or they can be established upon your death by your Will (known as testamentary).

Benefits of a Living Trust

A trust can be useful for:

  1. Avoiding probate in your own state and in other states where you own property;
  2. Preserving privacy;
  3. Establishing a mechanism to manage your property if you become incompetent; and
  4. Making it harder for family members to challenge your distribution wishes (compared to a Will).

Many clients establish a trust to avoid probate. A trust will not be effective in avoiding probate, however, if your assets are not placed into the trust. If any are missed, it may be necessary to probate the estate in order to transfer the few excluded assets. Also, titling all of the property in the name of the estate can be cumbersome and can become an issue whenever you buy or sell property. Residency issues also are a factor in choosing a living trust instead of a Will as many states will not allow non-residents to serve as the executor of an estate. They will, however, allow an out-of-state resident to serve as the trustee of a living trust.

Tax Consequences

A revocable or living trust does not provide any advantages over the use of a traditional will in saving estate taxes. Trusts can be established, however, that will minimize estate taxes and/or control the distribution of property beyond the life of the surviving spouse. For example, a credit shelter trust is set up to minimize estate taxes; a marital trust may be established to obtain estate tax advantages, provide for the surviving spouse while alive, and direct the disposition of the assets after the death of the surviving spouse.

We know that your estate is a reflection of years of hard work, careful planning and good decisions. That's why we dedicate considerable time to design a plan that is tailored to meet your unique needs and help ensure a secure future for those closest to you. We provide practical solutions to estate planning and asset protection concerns to accomplish our clients' wishes, including maintaining management and control of their estate, while at the same time avoiding probate, protecting family members, ensuring their financial privacy, obtaining peace of mind and avoiding unnecessary taxes. We understand that every estate, regardless of size, is important.