A trust can be thought of as a security container that holds valuable property. Upon death, protected assets are transferred to designated heirs and beneficiaries according to directives set forth in the decedent’s last will and testament.
The primary advantages of a trust are estates do not have to undergo the probate process and the Will remains private. Probate is required within the U.S. to settle decedent estates. Wills submitted through probate court become a matter of public record and can be viewed by anyone who wishes to see them. Additionally, property transferred to trusts is often exempt from estate and inheritance taxes.
Establishing a trust is not difficult, but does require assistance from a lawyer or professional estate planner. Several types of trusts are available. The most common include: testamentary, revocable, irrevocable, and life insurance trusts.
Unless you’re a multi-millionaire executing a trust can be accomplished in less than a day. The reward is knowing your estate is in order and can be settled without the complications that often arise with probate estates.
As a probate real estate investor, I could share horror stories about the way people behave in probate court. Death is an emotional event that often leads to flared tempers. Family members will go to extreme lengths if they feel cheated or were disinherited. I’m certain their behavior has caused loved ones to roll over in their graves. Personal experience has turned me into an advocate for establishing a trust.
The first step involves locating an estate planner or lawyer. Start by asking friends and family for referrals or search for estate planning services in phone directories. Check with your bank or credit union to see if they offer estate planning or can offer referrals.
Estate planning is quite personal and tends to give people a reality check. After all, you are planning for your death and you need to make important decisions. Therefore, it’s best to work with someone you like and feel you can trust.
Lawyers and estate planners sometimes offer complimentary meet-and-greet sessions. It’s a good idea to consult with three or more professionals to discuss services and fees and see if your personalities mesh.
Trusts can be custom designed to suit the needs of the Grantor. Each type of trust offers unique features, but all are comprised of four basic elements.
1. The person establishing the trust is known as the Grantor.
2. Trusts are managed by a Trustee.
3. Trusts have a Principal.
4. Trusts have Beneficiaries
The Trustee might be the Grantor, an estate planner, lawyer, relative, or friend. Everything owned by the Grantor is transferred to the trust and managed by the Trustee. The Trustee cannot access protected property until the Grantor dies.
Transferring inheritance assets into a trust involves recording details of the property. This can include an inventory list of personal property, property appraisals for valuable assets, and legal titles for real estate and motor vehicles.
The Principal of trust refers to money which used to generate income for beneficiaries. Trustees can use principal funds for expenses related to estate management duties or investment purposes. When investments generate dividends the proceeds are used for future investments.
Beneficiaries are the people who receive inheritance property. Most people gift assets to their spouse, children, siblings or parents, but Grantors can bequeath their property to anyone they desire.
Individuals with estates valued below $50,000 may find trusts are not the best estate planning strategy. It is best to consult with a probate attorney to discuss state probate laws and strategies to avoid probate.
American Bar Association: Wills and Trusts