Frequently Asked Questions Concerning Trusts
There is a misconception that trusts are only for the rich. However, people with smaller estates can benefit from a trust as much as, or even more than, people with larger estates. A trust reduces estate taxes, allows your heirs to bypass probate and keeps information about your estate out of the public eye.
Listed below are some of the questions I hear most often about trusts.
Why do I need a trust?
A trust can serve a variety of purposes. Many families set up trusts as a way to fund education for children or to fund long-term care of an elderly relative. Business owners who want to pass their company down to the next generation can use a trust to save on estate taxes. A trust can also be used to protect your assets in the event that you become seriously ill or mentally incapacitated.
What responsibilities does a trustee have?
Simply put, it is the responsibility of the trustee to manage the assets in the trust. This means paying expenses, maintaining properties and taking care of any other responsibilities tied to the maintenance of assets in the trust. For a living trust, most people name themselves as trustee and manage their assets for as long as they are able. Married couples often establish trusts as co-trustees so that if one of them is no longer able to perform their duties, the other takes over. In trusts where the trustee is not a corporate trustee, there are usually one or more successor trustees named.
What is the difference between a revocable and an irrevocable trust?
There are a couple of key differences between revocable and irrevocable trusts. First, an irrevocable trust cannot be modified or revoked after it is set up, while a revocable trust can be modified at any time during the grantor’s life. A revocable trust is considered part of the grantor’s estate, but an irrevocable trust is separate from the estate. Grantors who set up a revocable trust can (and often do) name themselves as trustees; grantors who set up irrevocable trusts for their own benefit usually cannot legally name themselves as a trustee. If the trust is for the benefit of a third party such as a child, then the grantor can serve as trustee.
Are creditors restricted from collecting debts out of the assets in my trust?
It depends on the type of trust you set up. Assets placed in an irrevocable trust can be protected so that they cannot be touched by your creditors. Assets placed in a revocable or living trust are not protected from creditors. Any asset in a living trust may be accessed to settle debts owed by the deceased grantor’s estate.
What is a testamentary trust?
A testamentary trust comes into existence after the Grantor dies. It can be created under either a will or a living trust. If created under a will, then the trust will come into existence after the will is probated and the estate is settled. This type of trust is often set up to be a repository for life insurance proceeds that are distributed to minor children and relatives with health conditions or disabilities.