What Is A Trust?
To many people, the statutory phrase trust is intimidating and confusing. However, a trust is a simple to explain, and easy to set up. A trust is simply an agreement that is set up between three parties: A trust maker, a trustee, and one or multiple beneficiaries. The trust maker is the individual who is putting assets into a trust. The trust creators are also called a grantor, trustor, or settlor. A trustee is a person who is responsible for and manages the property and assets that the trust maker transfers into the trust. The beneficiaries of the trust then receive the benefits of the assets and money that the trust creator has placed into the trust. A trust is simply where a trust maker transfers the ownership of property to a trustee, who cares for them for the benefit of the beneficiaries. The beneficiaries may eventually gain ownership of said assets.
There are a plethora of types of trusts that a trust maker can create. One type of trust is called a living trust. In these kinds of trusts, the trust is both created and used during the trust maker’s lifetime. It can also be called an “inter vivos” trust.
Some trusts to not go into effect until the trust maker has died. Trusts that take effect post trust creator’s death are called testamentary trusts. When someone dies, his or her will can create a testamentary trust. The trust creator can leave a trust in their will. In the will, the trust maker will name the trustee and the beneficiaries. The will can also state a guideline for how the trustee is to divide the benefit among the recipients.
Revocable Living Trust
A revocable living trust is a form of trust where the trust maker, trustee, and the recipient are all one individual or entity. The trust agreement may also list other beneficiaries who are to inherit the trust after the trust maker’s death. Revocable trusts are often used to plan for a mental disability and to avoid establishing the legitimacy a trust maker’s assets by placing them in a trust as opposed to a will. The trust maker can specifically name someone to be their “successor trustee.” The successor trustee is responsible for taking over the trust if the original trust maker becomes mentally disabled. Appointing a successor trustee lets a trust maker avoid having a court name a guardian or conservator to watch over their assets while they are ill.
Irrevocable Living Trusts
Irrevocable living trusts do not allow for a trust maker to also be the trustee. Irrevocable living trusts are most often used to transfer wealth and assets to a next generation. Doing so can reduce the trust maker’s total monetary value, which can be beneficial for the trust maker’s tax purposes. The major issue with irrevocable trusts is that once property or an asset it put into it, it cannot be taken back out of the trust. A revocable trust can be dissolved at any time, and the property from it can be retrieved. However, an irrevocable trust can last forever.
Types of Trusts
While all trusts are either living or testamentary and revocable or irrevocable, there are several different types of trusts that cover many purposes. Here are a few specific examples:
Irrevocable Life Insurance Fund
An irrevocable life insurance fund can hold an insurance policy on the life of the trust maker. Because the trust owns the insurance coverage, it is not considered to be a part of the trust maker’s assets. Therefore, an irrevocable life insurance fund can make a trust maker’s estate value look lower for tax purposes.
Special Needs Trust
A special needs trust provides support for a disabled beneficiary. Because the trust is not officially a part of their estate, the trust does not interfere with their ability to draw Supplemental Security Income or Medicaid benefits.
Spendthrift trusts are a great option for beneficiaries who may not be financially responsible, are not yet old enough to inherit, or to protect assets if the recipient gets a divorce.
While a trust may seem like a difficult concept at first glance, they are a helpful tool that can aid in the transferring of assets to the next generation or a safe storage of valuable assets. If you or a loved one feel the need to create a trust fund, contact an experienced estate law attorney in Atlanta who can help you find the type of trust that suits you and your family’s needs.