Money Monday – Trusts Part 3

Print 005

Happy Monday!  Today I’m finishing our basic discussion of trusts.  This is not intended to be an exhaustive discussion by any means.  I only hope to give you something to think about and perhaps discuss with your attorney or financial advisor.

We left off talking about living trusts.  You may also have heard them called inter vivos trusts. It simply means the grantor (the trust creator) is living when the trust is created.  In contrast, a testamentary trust is created at or is activated by death.

Trusts, including living trusts, are generally subject to the laws of the state in which they are created or in which the grantor/creator is domiciled.  Even so, a grantor can transfer property held in many states into one trust.  In so doing, the grantor’s estate can avoid the potential for probate in each state in which property is owned.  This is especially helpful if you own a primary home in one state and a vacation home in another.  Throw in a rental property somewhere else and you see the value of transferring them into a trust.

Trusts are either revocable or irrevocable.  A revocable trust means the grantor retains control of the trust and its assets and can revoke the trust itself or any of its provisions.  In this case, any property in the trust will be included in the estate of the grantor.  So although this type of trust is great for avoiding probate and retaining privacy, it is not the primary tool used in the case of someone with a large estate seeking to avoid estate tax.  (In 2015, an estate will be taxed on its value exceeding than $5.43 million).  there are strategies to help avoid taxation of large estates but they are beyond the scope of today’s discussion.

An irrevocable trust is essentially the opposite a revocable trust.  The grantor gives up any rights to the assets transferred into it.  As a result, a separate trustee must be named to manage the assets in an irrevocable trust.  If handled correctly, this trust and its assets will not be included in the estate of the grantor.

Irrevocable trusts are not only used for estate planning purposes.  By transferring assets into an irrevocable trust, those assets may be protected from the claims of creditors even if the grantor/creator is the trust beneficiary.  These trusts cannot be set up after the fact in an effort to defraud existing creditors, but they may be set up in advance for the purpose of protecting assets from being squandered by or swindled from the intended beneficiaries.

In order to ensure your trust fulfills its intended purpose, it is important to seek the counsel of a knowledgeable trust and estate attorney.  You have specific goals in mind for your trust.  Isn’t it important to make sure the trust is written in a way to meet those goals?

To your better wealth,