Legal Focus: Trusts
1. Are there different types of Trusts?
Trusts are divided into 2 basic types – revocable and irrevocable. A revocable trust is one that you reserve the right to change during your lifetime as often as you wish. An irrevocable trust is one that cannot be changed once it has been signed by the grantor and the trustee. In most cases, irrevocable trusts are used in estate tax planning situations to allow persons to make gifts to their children or other relatives but still retain some control over the amount gifted as opposed to making outright gifts to children or other relatives.
2. What is the difference between a Revocable and Irrevocable Trust?
3. How can a trust benefit me as opposed to only having a Will?
Trusts have several advantages over wills. First, any property held in trust does not have to pass through Probate Court to be transferred to your intended beneficiaries but that process is directly controlled by your designated trustee, who is typically a family member. This eliminates a large amount of paperwork, cost and also reduces the time involved in estate administration.
Second, since trust property does not pass through Probate Court, your financial information remains totally confidential and is seen only by your designated trustee and beneficiaries. If a trust is not used, Probate Court requires a filing of a complete inventory of all assets, which then becomes a public record.
Third, if you have minor beneficiaries (children under 18), a trust allows the trustee (who is also typically the guardian of any minor children) considerable more flexibility. Without a trust, any money designated for minor children must be placed in guardianship accounts which have many restrictions. Money in guardianship accounts cannot be spent on the children without first securing court approval. Money in guardianship accounts cannot be invested in stocks or bonds but must be invested in CDs, money markets or other cash equivalents. Also, if you have minor beneficiaries, a trust allows you to have the trustee manage the money for the childrens’ benefit past the age of 18 (for, example, until they finish college or attain age 25). Without a trust, Probate Court requires that any funds in guardianship accounts for children under 18 be fully paid out to the children after their 18th birthday.
This article is for general informational purposes only, is not for the purpose of providing legal advice, and does not establish an attorney-client relationship. You should consult with an attorney to obtain advice as to your particular issue or circumstances. 530045.1.