What is a Trust? Everything You Should Know
People spend time and resources planning for their lives to the extent of taking up last expense insurance. However, not much is clear about how one would love their loved ones to live after their demise. It is essential to plan your life and the life of those around you. Planning allows successful continuation in case of an unfortunate event such as death. You can do so by creating a trust.
You may be asking, what is a trust? A trust is a relationship where the grantor grants a trustee the right to hold assets for the grantor’s benefit. For instance, if you have minors, you could outline at what age they are entitled to your asset and funds. You can also state how often they can receive the money and how they should appropriate the funds. The trustee oversees the use of the assets and gets compensation in a management fee.
Types of Trusts
There are two categories of trusts. The living trust is also known as the inter vivos and the testament. In a living trust, the grantor sets up a trust during their lifetime, and the testament, trust can only come to be after the grantor’s death. In a testament trust, the validity of a will has to be proven to affect it. Some of the popular types of trust include:
a. Special Needs Trust
In this kind of trust, a beneficiary is a person living with a disability. Usually, if a person suffers a chronic disease or has a disability, giving them a financial gift or an inheritance may affect their Medicaid. It may also make them ineligible for medicare.
However, there are state rules that outline how such people could benefit from a trust. In a special needs trust, the heir is not allowed to revoke the trust. They also cannot be the trustee, and under no circumstances can they control the number of funds disbursed or the frequency. The trustee is responsible for holding or terminating the trust in case it renders the beneficiary illegible of state services.
b. Charitable Trust
A charitable trust allows the conferrer to leave a part or all of their assets to a non-profit organization. This trust can be a testament or an inter vivo. The two types of charitable trust include:
- Charitable lead trust
- Charitable remainder trust
They both can be useful in reducing taxes depending on the structure.
c. Irrevocable Trust
A grantor can create this trust while still alive or after death. Once the conferrer transfers property, assets or money to an irrevocable trust, they cannot have them back. An irrevocable trust offers asset security, especially to people with large estates. If there are any changes that the grantor needs to change, the beneficiaries must be given a notification and agree to it.
d. Revocable Trusts
A donor can only create a revocable trust while they are alive. The grantor holds the right to modify or revoke the trust, and they are often the initial trustee. The revenues generated by the trust form part of the tax grantor’s details. In the event of the trustor’s death, this trust becomes irrevocable.
e. Spendthrift Trust
This trust works best if you have a minor you wish to list as a beneficiary. You can give specific information such as the age at which the heir is eligible for the property or the gains from the property. It can be disbursed as an allowance or given to cater for needs such as medical or school expenses.
When settling for a trust, consider the features of the trust and the benefits you intend to get.
Benefits of a Trust
Now that you have answered the question, what is a trust, you will need to know why it is important to set up one. Below are some reasons.
a. No Probate Process
Trust, unlike a will, does not require one to seek legal assistance to review its validity or authenticity. Probate allows the court to handle inheritance matters, rendering all information public. A trust is between the trustee and the beneficiary as outlined in the document, thus enhancing privacy.
Avoiding probate saves time since there is no waiting duration set for a hearing. It also saves one from incurring legal fee charges and probate fees, which could be as high as 5% of the total value of the inheritance.
b. Eliminates Family Fights
A trust allows the grantor to decide how the beneficiaries should divide the property. Most times, in the event of death, if the individual has not shared the assets, there is a possibility of conflict. Both members of the family can get into fights over the property. At times, outsiders could take advantage of the situation and claim a right to the assets.
In a trust, the deferrer knows what items are of sentimental value to the loved ones. A trust can ease complex family contentions, unlike a will. Beneficiaries have access to the trust only with the grantor’s consent. Heirs and relatives do not have reason to argue when the trust stipulates the order and course of action.
c. Difficult to Contest
There are majorly two ways in which a complainant can challenge the legitimacy of a trust. The first is by arguing that the grantor was not in the correct state of mind when setting up the trust. In this case, there has to be evidence that the assignor was mentally incapacitated and did not understand the risks and benefits of making that decision.
The other reason one can dispute a trust is if the donor was coerced or did not set up the trust under free will. Even so, it is difficult to challenge the trust. It gives you greater protection against legal action, thereby making it an ideal choice for most people.
Trust Planning Process
When planning for a trust, it is essential to realize that it is a process. Getting your checklist will allow you to go through the process thoroughly and eliminate flaws. The trust is part of the will and the estate process. You will therefore set it up simultaneously with the said documents. Part of what you will need to have include:
- The will. You will require to have a formal updated will. It should stipulate how the trustee should distribute your property after your demise.
- Your healthcare proxy- this document allows you to appoint someone to make decisions on your behalf if you become incapacitated.
- A living will- this document will guide the decisions you make concerning your property while you are still alive.
- The trust which outlines your desires concerning your finances and situation. The trust can be a testament or a living trust.
The process of creating a trust can take months. It is essential to walk with an expert. If you are in Florida, Weidner Law offers professional probate services. Call our number at 727-954-8752 for booking and inquiries.