There are many unfamiliar terms and concepts to learn when you first start thinking about planning your estate. You may not know where to begin. This may be especially true if you are thinking about creating a trust in order to preserve your property for yourself and your loved ones.
In this post, we will discuss some of the most important concepts in the law of trusts, so that, hopefully, you can start deciding what type of trust is right for you and your family.
The basics
Let’s begin with a brief introduction to the concepts. A trust is a legal tool that allows for the division of ownership in property. The person who creates the trust is known as the grantor. This person places assets in the care of a trustee. The trustee manages the assets for the benefit of the people the grantor has named as beneficiaries.
For instance, a grantor may place money in a trust and name their grandchildren as the beneficiaries. The trustee then manages the assets by carefully investing them so that there will be enough money in the trust to help the beneficiaries for years to come. If the terms of the trust require the trustee to issue regular payments to the beneficiaries, then the trustee makes these payments according to the schedule determined by the trust.
Living trusts
It’s common for a grantor to set up a trust that goes into effect only after their death. This is known as a testamentary trust, and its primary advantage is that it can allow the assets in the trust to avoid estate taxes or going through the probate process.
However, grantors can also set up a trust that goes into effect during their lifetime. This is known as a living trust. This type also has advantages, but the extent of these advantages depends on some other details of the trust.
Some grantors set up a living trust and name themselves as the beneficiary. This allows them to enjoy the income from the trust while giving the assets in the trust certain financial and legal advantages. Often, this type of trust names the grantor’s loved ones as the successor beneficiaries, so that after the grantor dies, the trust goes on providing for their loved ones.
Revocable and irrevocable trusts
Living trusts can be either revocable or irrevocable. As the name suggests, a grantor can revoke or substantially alter a revocable trust. This makes a revocable trust a good choice for grantors who desire control over the trust assets.
However, an irrevocable living trust allows for stronger protection from taxes and creditors. It’s harder for the grantor to get their hands on the assets in an irrevocable trust, but it’s also harder for the IRS and creditors to get their hands on the assets.
With this in mind, you may want to start your estate plan by deciding what is most important to you: protecting your property or having some control over it.