A Trust ensures that your appointed person is authorized to care for you if you become incapacitated. It also allows you to direct the use of your assets after your death. You can determine who benefits and when. You can put conditions on the receipt of benefits.

Because you can condition and limit the receipt of property, trusts may be excellent instruments for creating intergenerational wealth.  And a fully funded trust allows for the transfer and management of property without the necessity of court intervention.

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Your Questions Answered

  • A trust is a legal entity in which a person called a “Trustee” manages property for the benefit of someone called a “beneficiary.”

    The person who creates a trust is usually called the “Settlor” or “Grantor.” So if you would like a trust created for you, you will be known in the document as the Settlor or Grantor.

    The “Trustee” is the person that holds legal title to the property in the trust. In some trusts, like a revocable trust or living trust, the Settlor is also the “Trustee.” This means that the person for whom the trust is created maintains control of his or her assets as Trustee.

    Every trust must be for the benefit of someone. The person or persons who benefit from the trust are called the “beneficiary” or “beneficiaries.” So you might be the beneficiary of your own trust. Your children, grandchildren, spouse, friend or church may be beneficiaries during your life or after your death.

    The body of the trust document describes what is to be done with the property in the trust.

    The “trust property” or “trust assets” must be titled in the name of the trust in order for the trust to govern its disposition. A trust must be “funded” to be effective.

    “Funding the trust” means changing the legal title to the property to the name of the trust. This is a crucial step that is unfortunately often overlooked. The Trust document can only govern property that is titled in its name.

    You do not need to be a millionaire to have a trust. Any person with someone to protect, like minor children, elderly relatives or disabled beneficiaries, can make very good use of a trust.

    As a legal entity, a trust must follow the laws of the jurisdiction in which it is created. Each state has different laws that govern trusts. Some trusts can act as a will substitute on the death of its creator.

    There are many types of trusts, e.g., Living Trusts, Special Needs Trusts, Grantor Retained Annuity Trusts (GRAT), Charitable Lead Annuity Trusts (CLAT), Charitable Remainder Trusts (CRT), Irrevocable Life Insurance Trusts (ILIT), Qualified Terminable Interest Property (QTIP) Trusts, etc. Each is different. Each serves a purpose.

    Trusts are complex documents, with specific uses and tax implications. They should be prepared by competent attorneys. They can be very helpful in many ways. But they must be done right to be effective.

  • Many people hear about “trusts” but don’t understand how they work. First of all, a trust is a legal entity in which a person, called a “Trustee,” holds legal title to “trust property” for the benefit of someone called a “beneficiary.” The most common form of trust is a revocable trust,  sometimes called a “living trust.”

    In a revocable trust, the person creating the trust is usually the Trustee and also the primary beneficiary of the trust while they are alive, (e.g., “living trust”). Thus when the trust is created for you, and you “fund” the trust (more on funding a trust below), you maintain control and dominion over your property and use it for your benefit, just as you do without a trust.

    As long as you, the creator of the trust, are alive and competent and acting as the Trustee, you can sell, encumber, mortgage, and give away the property in your revocable trust. You maintain control. It is called a “revocable” trust because you can change your mind about its provisions. You may change the way you want the property managed after your death. You can change the person or persons you have named as your Successor Trustee. You can take property out of trust and put more property in the trust. Usually the trust property is also used only for your care. Only after your death is the property managed and distributed to others as you have directed in the trust document.

    You appoint a “Successor Trustee” in your trust document, i.e., the person to take over management of trust property in the event of your incapacity or death. The Successor Trustee takes title to your property at your incapacity or death. Your Successor Trustee manages and distributes the property as you have directed in the Trust document, without the necessity of court intervention.

    Having appointed your Successor Trustee, no court is needed to intervene if you become too sick to manage for yourself. No conservator of your assets is necessary. No stranger need be appointed to manage your money and assets for you. This is also how the trust is used to avoid probate. At your death, your Trust acts as a will substitute, and your Successor Trustee pays your last expenses and taxes and distributes your property as you have directed.

    A trust maintains privacy for you and your family. It permits you to appoint who you desire to take care of you when you are unable to because of illness. It avoids family fights and dissension. It allows you to control the distribution of your property after your death. It even allows you to establish more trusts within your trust that will continue to control the distribution of your property for your loved ones after your death.

    A trust is an important legal document. It is subject to complex laws about title, taxes, etc. It should be customized for you and your concerns by a competent lawyer who is knowledgeable about state laws regarding trusts and familiar with your individual concerns and desires.

  • Funding your trust is one of the most important steps in having a trust and is the one step most often not completed. To repeat, a trust is a legal entity in which a person known as a “Trustee” holds legal title to property for the benefit of a person known as a “beneficiary.”

    In order for the designated Trustee to hold title to property for someone, that property must be titled in the name of the trust. If you want your house distributed according to the terms of your trust, the title to your house must be in the name of your trust. If you want your bank accounts managed through your trust, the title to your bank accounts must be in the name of the Trustee of your trust.

    Title to property in a trust is usually in the following format: “Name, Trustee of the Name Trust.” So, if your name is Mary Smith, to have your property in your trust, the title must be in the name of “Mary Smith, Trustee of the Mary Smith Trust.” Your lawyer should prepare a deed from you to yourself as “Trustee of your trust.”

    The bank accounts you wish to be managed by your trust should be changed to “your name, Trustee of your trust.” If you wish the benefits of your life insurance policies to go into your trust, you must name the trust as the beneficiary of the policies. This is called “funding your trust.”

    If you do not fund your trust, the trust will not have control of the designated property.  The account titles and beneficiary designations will override your objectives. A properly created estate plan with a trust also has a Last Will and Testament (“Will”). With many trusts, especially a Revocable or Living Trust, your Will is what is called a “Pour Over Will.” A Pour Over Will provides that your Residuary Estate is to be distributed to the Trustee of your Trust.

    After death, your trust is “funded” through the probate of your will. But your estate will have to go through the public process of probating your will, with its attendant costs and delay. Only then is your Trustee able to manage, control and distribute your trust assets as you have directed.

    If you fund your trust and make these changes to the title of your assets during your life, your trust will govern your assets as you desire. This is a very important step in being sure you are protected by your trust and your wishes are carried out.

    Be sure to use an attorney that will assist you in this step. Unfortunately a lot of “form” trust companies do not bother with this step, or at best send you a form letter instructing you about what must be done but leaving it to you to do it. Make sure it gets done.

    Failure to fund a trust before incapacity or death may at best result in the necessity of probate and its attendant expense in delay, and at worse, defeat of your intentions as expressed in your trust. Without funding, your trust can be ineffective.

  • Most people prefer that their financial affairs remain private. The creation and funding of a trust can help meet this objective by keeping your affairs private. If you must probate to transfer property at death, the probate proceeding will be open to public scrutiny.

    A probate proceeding is public. The probated estate of the deceased person is listed. The debts, expenses, taxes and claims against the deceased person’s estate are open to public view.

    A trust keeps the financial affairs of a deceased person’s property private. The trust must be properly prepared and funded before death to accomplish this objective. A properly funded trust can be quickly and efficiently distributed to the intended beneficiaries, especially if there are no estate taxes.

    If you want to keep your assets and debts private, a trust is the better alternative. Just be certain your assets have been properly retitled to accomplish your purpose. If they are not, a probate may still be necessary to get the property into the trust.

    A properly prepared and funded trust keeps your family’s affairs private. After death and payment of debts, expenses and taxes, your property may be transferred through your trust as you direct, privately, easily and without court intervention or public scrutiny.

  • A properly prepared and funded trust avoids the lengthy and expensive process of probate. Your trust appoints your successor trustee to pay bills and distribute your assets. It operates automatically without court intervention. It is private.

    Probate is the court process that governs the transfer of property from the name of the deceased person to a living person. Many persons wait years to receive property left them by loved ones. Probate is expensive.

    A fully funded trust avoids probate. Your heirs get their property quickly. Your estate is not diluted with probate fees.

  • If a person anticipates that his or her will may be contested, it may be wise to establish a living trust. A person who is ill may not want to make investment decisions to continue managing their property. They may be facing an illness that they expect to be difficult.

    A living trust names the desired Successor Trustee or Co-Trustee who will take over if the original Trustee becomes sick or incapacitated. This appointment gives the creator of the trust the opportunity to put into control the person or persons they know and trust. The living trust can keep property of incapacitated persons out of the hands of untrustworthy individuals.

    A living trust empowers the Successor Trustee to take care of the Settlor and distribute the property as the Settlor directs at their death. A living trust, created while the person is clearly competent, is much more difficult to challenge than a will. It is more difficult to challenge on grounds of incompetency or undue influence.

  • If you have no trust into which you have titled your property and you personally own real estate in more than one state when you die, your heirs must open probate proceedings in each state where you have real estate. The law of the state in which real estate is located governs the title to that real estate in most cases. For that reason, when you die owning real estate in more than one state, your heirs must go to that state to get title to that property.

    However, before your heirs can approach a state other than where you were domiciled when you died to get your property, your heirs must first open the probate of the decedent’s estate in a court in the county or city of your domicile jurisdiction. Your domicile is your primary place of residence. It is not only where you live most of the time, but may include where you vote, pay taxes, have your driving license, etc.

    So if, for example, you are domiciled in Washington, DC and own property in South Carolina, your heirs must first file a probate petition and open an estate in Washington, DC. After opening the estate in your domicile, then, they must open what is called an “ancillary probate” in South Carolina. Only then can they begin the process of getting title transferred to them of the real estate in South Carolina.

    All of this can be simplified with a trust. A properly prepared and funded trust will avoid the necessity of these expensive and time-consuming probate procedures. Once your trust has been properly prepared and executed, your lawyer should prepare or have prepared deeds to all of your real estate you wish governed by the trust. These deeds should transfer the title from your individual name to the “Trustee” of your trust. These deeds should be properly recorded in each state.

    If your real estate has been titled in the name of the Trustee of your trust (and usually you are your own “Trustee”), at your death your Successor Trustee is empowered to transfer the real estate as you direct, without having to go through probate and without having to seek the assistance of any court, either in your domicile or in the state where the real estate is located.

    This power of a trust is a great money saver for people who own property in different states!

  • It is common to put trusts within trusts. Remember, a trust is a legal entity in which a Trustee holds legal title to property for the benefit of someone called a beneficiary.

    Let us say you have minor children or grandchildren you want to give something to after your death. Or perhaps you are concerned that your spouse, parent, or friend will not be able to manage the trust property you want to give to them after your death. You want a way to protect your loved ones. A trust within your trust can do that.

    In your revocable trust you can provide that, on your death, your Successor Trustee shall create a trust for each of your intended beneficiaries, (i.e., your minor children, grandchildren, spouse, parent or friend). You tell your Successor Trustee to take a certain part or all of your trust property and hold it separately for the benefit of your intended beneficiary.

    Your trust document then tells your Successor Trustee what to do with the property, (e.g., pay for education, health, maintenance and support). Your trust document states how long this new trust for your designated beneficiary(ies) is to be held and what happens when it ends.

    For example, suppose your grandchildren are 3, 5, and 7. You can provide a trust within your trust for each grandchild. Your trust document may provide that, on your death, your Trustee is to create a separate trust for each child. You say what property goes into each trust by amount, percentage, etc. You empower your Trustee to manage the trust property for each child. You say that your Trustee may pay for their education, health, maintenance and support, or whatever is important to you. Or you could provide that the money you leave in trust is only to be used for their higher education.

    You say what the money can be used for. If, for example, the beneficiary is your spouse, you might say to pay for their health, maintenance and support in their accustomed manner of living. You also say when it ends, (e.g., at a certain age, the happening of an event such as graduation from college, or at their death). At the end of its use, the balance not used can go to the beneficiary or to someone else.

    Thus, you have created a trust within your trust. You have provided for the care of those you want. You have maintained control. And you can be assured that your wishes for your property are respected and followed. Be sure to have a competent lawyer prepare it for your individual situation.

  • A trust is a complex legal document. It has many provisions and each should be appropriate for your situation. A trust should be part of an effective estate plan that allows you to conserve your assets for yourself and for your beneficiaries of choice.

    Your trust should accurately reflect your wishes after consultation with a competent attorney who knows your family and financial circumstances. Preparing a trust should be a collaborative process between yourself and your attorney. This is the time to review the titles to your financial accounts and real estate property, and look at the beneficiary designations on your life insurance and retirement accounts. Discuss family and life changes, such as sickness, death of loved ones, divorce, marriage of children, birth of grandchildren, and charitable intentions. This is not done when you simply pick a form in a store or online.

    Your trust should be coordinated with your pour over will, power of attorney, and medical directive.  All documents should be considered and drafted together with a trust.

    Your trust must conform to the laws of the state of your domicile. Each state is different. Some states impose an estate tax on the transfer of property at death. Other states do not. Some states have inheritance taxes. Gifts made during life and gift taxes must also be considered. There may also be a federal tax on the transfer of property at death.

    There are numerous provisions and techniques that can be used in trusts that will significantly reduce and sometimes eliminate taxes, but they must be included in your documents to be effective. Also the title to your properties may have to be changed to take advantage of these techniques. A form is not going to do that.

    Your trust is important to you and your family. Don’t leave it to chance. Don’t try to save a penny and lose a pound. A properly prepared trust will provide significant savings and convenience for yourself and your loved ones. It can be a real gift to yourself and your family. Let a competent lawyer prepare it for you. Call Wills and Trusts LLC to prepare your trust for you.

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