For most people, a Last Will and Testament serves as their primary estate planning document. While a Will can dispose of your entire estate when you are gone, your estate plan can – and should – accomplish more than just the distribution of your estate assets. To achieve some of your additional estate planning goals and objectives you will likely need to incorporate additional tools and strategies into your comprehensive estate plan. One of the most common additions to a well thought out estate plan is a trust. In case you are unfamiliar with how a trust works, the Vero Beach estate planning attorneys at Kulas & Crawford have put together some basic information for those considering the addition of a trust into their estate plan.
Trusts Are Not Only for the Wealthy
A common misconception is that trusts are only used by the wealthy. Historically, that was the case. Trusts were once used almost exclusively by wealthy families as a vehicle by which they could pass down the family wealth while maintaining a certain degree of control over how that wealth was distributed and used. Trusts were also once used as a tax avoidance tool because loopholes in the law allowed assets transferred via the use of a trust to avoid federal gift and estate taxation. That was then – and this is now though. The tax loophole was closed long ago and trusts have evolved to the point where they are now commonly found in the average estate plan.
What Is a Trust?
At its most basic, trust is a relationship whereby property is held by one party for the benefit of another. The creation of a trust does not require a written agreement; however, when used as part of an estate plan a trust agreement is executed to ensure that the terms of the trust are clear.
A trust is created by a Settlor, also referred to as a “Grantor” or “Maker.” The Settlor transfers property to a Trustee and the Trustee holds that property for the trust’s beneficiaries. Although you probably do not realize it, you likely enter into trust agreements all the time. Imagine, for example, that you ask your friend Sasha to hold onto a box full of family heirlooms for you until your brother Jake can come pick up the box. You also specifically tell Sasha that Jake is not to take possession of the heirlooms until he turns 25 next year. You have created a trust in which you are the Settlor, your friend Sasha is the Trustee and your brother Jake is the beneficiary. In addition, the box of family heirlooms are the assets held by the trust and your directions regarding when Sasha is allowed to turn over the box is a trust term.
Testamentary vs. Living Trusts
All trusts are broadly divided into two categories – testamentary trusts and living trusts. A testamentary trust is one that does not activate until the death of the Settlor. Typically, a provision in the Settlor’s Will causes the trust to activate. A living trust, officially known as a “inter vivos” trust, is a trust that activates upon the satisfaction of all requirements for formation of the trust.
Revocable vs. Irrevocable Trusts
Living trusts can be further sub-divided into revocable and irrevocable trusts. A revocable trust can be modified, terminated or revoked at any time and for any reason – or for no reason – by the Settlor whereas an irrevocable trust cannot be modified, terminated or revoked by the Settlor once the trust becomes active. Because a testamentary trust is usually triggered by a Will at the time of death of the Settlor, and a Will can always be revoked up to the time of death of the Testator, a testamentary trust is always revocable.
Contact Vero Beach Estate Planning Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns regarding how a trust works, or you wish to discuss incorporating a trust into your estate plan, contact the experienced Vero Beach estate planning attorneys at Kulas & Crawford by calling (772) 778-8481 to schedule an appointment.