Updated: Feb 17
Many people realize the importance of preparing a last will and testament, but survey results reveal a significant gap when it comes to creating a trust as part of their estate plan. When asked about these two options, around 40% of respondents had already executed a will, while just 17% had taken steps to establish a trust. They cited numerous reasons for not moving forward, from not being wealthy enough to believing that trusts are too complicated.
These assumptions are a problem for those who might reap the benefits. The truth is that you can accomplish many estate planning goals with a trust, whether you are motivated by personal, financial, professional, or other objectives. However, misconceptions about trusts also expose a critical issue: A lack of understanding about trusts. Misinformation abounds, which is why you should count on a trusts and estate planning attorney to advise you on options. You can also read on for some basics you need to know.
Parties to a Trust
The creator of the trust is the grantor, and it is this person who establishes the fundamental provisions. In addition to setting terms on managing trust assets, distributing trust proceeds, and other details, the grantor will name the other parties to the trust:
● The trustee who is in charge of carrying out the provisions of the trust; and,
● Beneficiaries who receive distributions of trust principal and/or income as designated in the trust document.
Revocable Versus Irrevocable Trusts
One of the first considerations in preparing a trust is whether you want it to be something you can change – or an arrangement that you cannot modify after creating it. There are benefits to establishing an irrevocable trust, particularly with respect to tax planning and asset protection. For purposes of certain laws, you are not considered the owner when you have no control over trust assets. With a revocable trust, you retain the power to amend.
How to Implement a Trust
Depending on your goals, there are two methods for creating a trust as part of your estate plan:
● You can create a trust that is effective during your lifetime, in which case you might opt to name yourself as trustee; or,
● You may include trust provisions in your will, creating a testamentary trust that comes into effect upon your passing.
Funding Your Trust
When preparing a testamentary trust in your will, you must include provisions on how it is funded; usually, the source is other estate assets. However, you MUST fund a living trust immediately upon creation. The process involves re-titling your assets from your individual name to the name of the trust.
Count on a Trusts and Estate Planning Lawyer
Getting a grasp of the basics is useful, but there is much more to know about including a trust in your estate plan. Our team at Francois Williams Legal is prepared to advise you.