What is a Trust?
A trust is a legal tool that aids in estate planning by managing property. A trust holds legal title to property for the benefit of one or more persons. A trust creator creates the trust, the person or institution holding the title is called the trustee, while the people who benefit are called the beneficiaries. There are various types of trusts:
An Asset Protection Trust protects a per's claims from future creditors.
A Charitable Trust is established to help a particular charity and is often used to avoid federal taxes.
A Constructive Trust is an implied trust created by operation of law.
Generally, constructive trusts involve the transfer of a legal title of property while the equitable title remains with others.
Express Trusts are created by the grantor under a Trust agreement or declaration of Trust.
An Implied Trust is a Trust that was never made legal through documentation but is assumed so in court.
An Inter Vivos Trust is a trust that begins during the grantors lifetime and in which he serves as the first trustee while remaining capable of revoking or changing the trust throughout his/her lifetime.
An Irrevocable Trust is a trust which cannot be altered.
A Living Trust is a trust that can be altered or revoked by the grantor and in which he/she serves as the initial trustee. The grantor’s spouse or children are the ultimate beneficiaries of a Living Trust.
A Resulting Trust is created by operation of law and allows a person other than the one holding legal title to enjoy beneficial interest.
A Special Needs Trust ensures that a beneficiary is not excluded from government benefits awarded to the grantor. A Special Needs Trust allows that the beneficiary can still receive government benefits on their own in addition to the trust.
A Spendthrift Trust is established for a beneficiary but does not give him/her the ability to sell or give away the trust. The trust is not in the beneficiary’s control until the property is distributed out of the trust.
A Tax By-Pass Trust allows one spouse to leave money for the other while minimizing money lost to federal taxes.
A Testamentary Trust is a trust that is included in a will.
A Totten Trust is a financial account in which the grantor deposits money in a financial institution in his/ her name as the trustee for another. This trust is revocable and not completed until the grantor’s death.
Creating a Trust Instead of a Will
Wills and Trusts are both important aspects Estate Planning. While both legal tools ensure that your assets will be properly dispersed to your loved ones, there are certain differences between the two that should be considered.
Since trusts allow for the transfer of property to a legal entity or person during your lifetime, the property does not have to go through probate (the legal process which property must go through in order to transfer the title). Because of this, trusts often do not incur as many expenses as wills.
Trusts, as opposed to wills, allow for more privacy with regard to your property. Trusts are private documents; the public is not able to see the contents of the document whereas the contents of a will are generally available for public use.
Trusts are also beneficial because they keep property separate from other property. If you want to leave specific things to certain people (i.e. a house to a son, a boat to a daughter), separate trusts allow for this quite easily.
In the end, most people opt for trusts because they reduce court involvement with their estates. If privacy and ease are important to you, then a trust is probably the right way to go. As always, you should consult an experienced attorney before taking any legal action that you are not completely confident about.