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Trusts Lawyer

Trusts are often considered to be a tool for the wealthy. But in reality, trusts are a great estate planning tool that can help you manage your assets during your life and ascertain that they are disbursed to your loved ones in a timely fashion after you are not here. Besides this, there are a variety of trusts that you can choose from depending on your requirements. Irrespective of the type of trust you choose, hiring an estate planning attorney is always a good idea to ensuring that the trust is set up in line with your requirements and objectives.

What Is a Trust?

Trust is an asset management tool that is used for a variety of reasons from minimizing taxes to passing on wealth and estate to children and family. It is a powerful financial management tool. A trust is basically a three-party legal agreement in which the owner of the assets, known as the trustor or grantor, authorizes a third-party, also known as a trustee, to control and hold the assets on behalf of a beneficiary or beneficiaries. You can use trusts to specify when, how, and what assets will pass on to your children or other members of the family.  To better understand the tool, let’s take a closer look at all the parties involved in the setting up of a trust:

Grantor or Trustor

A grantor or trustor is the one who sets up the trust and transfers the assets to a third-party. The grantor is also known as settlor, donor, or maker. There can be more than one grantor or trustor who can set up a trust to achieve a collective goal. A common example of a trust with multiple grantors is a charity trust. Generally, two or more people collectively combine and transfer their assets to set up a charitable trust.

Trustee

The entity in charge of handling the assets of the trust is known as a trustee. In most states, the entity can be any person or organization that is legally entitled to own a property. This means that the trustee can be a bank, a brokerage company, or a trust company. Trustees are responsible for fulfilling the legal duty, also known as fiduciary duty, of ensuring the assets are utilized for achieving the objectives the trust was set up for. The trust agreement defines the legal obligations a trustee has to fulfill. Generally, the trustee has the right to buy, sell, transfer, or borrow against the assets of the trust.

Beneficiaries

As the term suggests, the people who benefit from the trust assets are called beneficiaries. The beneficiaries named in the trust agreement are entitled to receive the income and the principal amount of the assets that make the trust. There are three basic categories of beneficiaries:

  1. Primary Beneficiaries: The people first to receive the benefits of the trust assets are called primary beneficiaries. Generally, grantors name their spouse or children as primary beneficiaries. But you can change and control who benefits and how they benefit from your trust assets
  2. Contingent Beneficiaries: The people who receive the benefits of the trust after the primary beneficiaries are known as contingent beneficiaries or secondary beneficiaries. These beneficiaries are designated to benefit from the trust in the future. Besides this, contingent beneficiaries may receive the benefits at the sole discretion of the trustee. This means that the trustee has the power to decide whether the contingent beneficiary requires the money. The names of the secondary beneficiaries and the scope of the benefits they receive can be changed by the grantor until the trust is revocable.
  3. Remainder Beneficiaries: Contingent beneficiaries turn into remainder beneficiaries once the trust becomes irrevocable. When this happens, the name and scope of the benefits cannot be altered or revoked. However, this does not mean that the contingent beneficiary will definitely receive the assets or benefits from the assets. There is a possibility that the assets and the income generated from them are exhausted to fulfilling the needs of the primary beneficiary leaving nothing for remainder beneficiaries.

Beneficiaries are not restricted to family members or other individuals. Non-profit organizations and charities can be named primary beneficiary by grantors. The grantor decides who and what types of benefits do the beneficiaries receive during the setting up of the trust.

Types of Trust

The most common types of trusts are:

Living Trust

Living trusts are created by grantors when they are still alive. In this setup, the grantor becomes the trustee and controls the assets. The grantors typically chose a trustee successor who takes charge of the trust when they lose the capacity or die. You can use a living trust to make future provisions for your healthcare. As the grantor of a living trust, you will also get the right to change the terms of the agreement throughout your lifetime.

Testamentary Trusts

This type of trust is also known as a trust under will. The trust is created through a will after the death of the grantor. Using this type of trust, you can secure a safe financial future for your children and spouse, preserve assets for children from a previous marriage, ensure the beneficiaries with special needs are taken care of, or gift your assets to charities.

Revocable Trusts

Revocable trusts are also called revocable living trusts. These trusts allow you to maintain control over the terms and conditions of your trust and can be dissolved if required. Revocable trusts are flexible and allow you to make changes to the terms and conditions throughout your lifetime.

Irrevocable Trusts

These are trusts that cannot be changed once they are set up. So, if you transfer your property to a trustee under an irrevocable trust you cannot undo it. Although it is not as flexible as revocable trusts, it can be used as a safe haven to protect your assets from creditors, beneficiaries, and even Medicaid. Placing your assets under irrevocable trusts can also save you gift and estate tax.

How to Set up a Trust?

After deciding the type of trust you want to set up and getting your finances and estate in order, you will need to follow two steps to set up a trust:

  1. Drafting the Trust Agreement: You will have to create a legal agreement designating the roles of the grantor, trustee, and beneficiaries to the respective people and outlining the way the trust assets should be used and distributed. In this step, you will be required to decide who the trustee will be, identify the beneficiaries, and how would you want your assets to be used and distributed among the beneficiaries.
  2. Funding the Trust: The second step of the process is to transfer your assets to the trust. Without this step, your trust would be worthless. You need to take a note of all the assets you own and decide on how they will be distributed. The way these assets are transferred to the trust depends on the nature of the property. Following are some common assets that you may look to transfer to trusts:
  • Real Estate: For transferring real estate, you will need to execute a deed that transfers the title of the property to the trust.
  • Personal Property: Assets such as boats, motor vehicles, and RVs, personal jets, and mobile homes come with some kind of a title document that can be transferred to the fund. The same procedure can be followed to transfer bonds and stocks to trust.
  •  Other Property: All other personal property that does not have any titled documents can be transferred by writing their description on a piece of paper and noting that they are being transferred to the trust.

Why Hire a Trust Attorney?

Drafting a trust agreement and handling all your assets can be tricky and complex. Hiring an estate planning attorney will simplify the process for you in the following ways:

  • Estate planning attorneys understand the importance of language in the filing of trusts and will help you draft trust agreements that are in line with your requirements. This way they will ensure that the assets of your trust are used in a way you intended them to.
  • An estate planning attorney will help you maximize tax benefits, avoid probate, and ensure that your assets are seamlessly transferred to the beneficiaries.
  • With an estate planning lawyer by your side, you can avoid making any mistakes that can significantly impact the usefulness of your trust. An estate planning attorney will help you complete the process in no time and ensure that no inadequacies or gaps exist.
  • Hiring an estate planning attorney will help you resolve complex financial and family situations. Because estate planning lawyers know the intricacies of the law, they can help you chose the best possible way to deal with your situation
  • An estate planning attorney will help you organize your records and update them whenever necessary to ensure that your assets are protected and your trust benefits the intended parties.

Looking to find the best way to manage your assets and reduce your tax liabilities? Fill in the form alongside and we will help you find an expert estate planning attorney who can help you in the process.