What Is a Legal Trust?
There are numerous types of legal trusts available in order to help you plan how you prefer your finances to be handled while you are alive and after your death. People often add legal trusts to their existing will in order to ensure all of their assets are secure. Trusts may be utilized for large estates, marriage and to ensure minor children are taken care of in the event of your demise.
A trust consists of a legal agreement that enables you to dictate how you want your finances taken care of. Some people create a trust independently of their last will and testament; while others create one in conjunction with their will. Your lawyer will be able to listen to your wishes and recommend the best type of estate planning for your situation.
How Do I Create a Trust?
As this is a legal document, you will have to sit down and discuss the pertinent details with your lawyer. The initial step includes you or your lawyer creating a draft of a trust agreement or trust which indicates that you are the grantor of the estate, also known as the “settlor.” This document additionally clarifies who will act as trustee.
In order to be complete, the trust documentation needs to distinguish the names of your particular beneficiaries. Specific instructions of how you want your assets to be taken care of are included in the documentation.
Who Is the Trustee?
Your appointed trustee is the person who is responsible for managing any financial aspects or assets within the trust.
After the paperwork has become finalized, you may begin the process of transferring your assets’ ownership over to your trustee.
What Kinds of Assets Are Put In Trust?
Valuable items and sentimental ones may be left in a trust. Common examples include:
- Bank Accounts
- Certificates of Deposit
- Real Estate
- Mutual Funds
- Certificates of Deposit
There are different kinds of legal trusts available depending on what you wish including:
- Revocable vs. Irrevocable Trusts
- Special Purpose Trusts
- Testamentary vs. Living Trusts
Additionally referred to as an “inter-vivos trust,” a living trust is in effect while you are alive. In this scenario, you may be your own trustee and have a successor trustee in place to take control after your death.
Living trusts can protect your assets in the event that you become incapacitated. In this event, your successor trustee can handle your financial management to ensure your family has access to their required resources while your bills are still paid etc. This type of trust is often in play for those who operate and own their own business and those who have significant assets.
This kind of trust only takes effect after you have passed away. A testamentary trust is formed by a particular provision included in your last will and testament.
This kind of trust can be revoked or changed at any time before you die and for a variety of reasons. If you wish to exclude a certain beneficiary or want to add or take assets out of the trust, this is an option. Individuals have the choice to revamp the existing trust or to complete revoke it. A new trust may be established to reflect your current wishes.
Once it has been established, an irrevocable living trust is unable to be changed. Therefore, once a particular asset has been transferred into an irrevocable trust, you are unable to resume ownership of it at a later time. Why would anyone want to roll the dice this way, you may ask? Some people set this up as part of a divorce decree, while elderly family members may wish to permanently transfer particular assets in order to become eligible for medical funding.
Special Purpose Trust
Special purpose trusts can be set up to protect your estate and your beneficiaries from certain creditors’ claims. Those who wish to establish a charitable trust to leave part or all of their assets to a charity also fall into this category.
Special purpose trusts may be set up as credit tax shelter trusts. This helps married couples with substantial estates to reduce their future tax liability upon one spouse’s passing.
One of the most common reasons people initiate trusts is to specify what happens to their minor children and name who will look after them if needed. Additional instructions may be left on the restrictions in place for them to achieve their inheritance.
Appointing a person to navigate the children’s accommodations and finances until they become of age is a huge responsibility. Be sure to discuss these details with the people you have in mind prior to having your legal documents prepared.
Regardless of your personal situation, why is it a great idea to find out what kinds of legal trusts are there? Wouldn’t you be devastated to have thought your will was suffice only to find out you would have been better off to include a legal trust in your estate planning? Speak with your attorney to ensure you are protecting your family, your assets and your future in the best way possible.