What is a Trust?
A trust is an arrangement that allows for a third party (known as a “Trustee”), to hold or take custody of property (known as the “trust corpus”) that was owned by one party (known as the “Settlor”) for or on behalf of a party or group of parties (known as the “beneficiary”). The beneficiary can be the settlor, a charity, corporation, or person. Trusts are generally classified as either revocable (can be changed) or irrevocable (cannot be changed). Under a revocable trust, property moved into trust can be removed, and any provision of the trust can be changed at any time. A revocable trust can also be revoked (terminated) at any time up until death. In some cases, trusts are also used as an asset protection device.
Trusts are arranged in many ways so that the Settlor can control exactly how and when trust assets pass to a beneficiary. A trust is not just for wealthy people. When the Settlor places assets in trust, they are in reality gaining additional control over that asset for either their personal benefit or the benefit of others. A trust is beneficial to provide tighter financial management and protection for the settlor. A trust can also protect the assets from creditors of the Settlor and a beneficiary. A trust can also take property out of the probate process to avoid all types of taxes. Trusts are excellent tax planning tools. Having a trust can serve for far more than one purpose.
In all but a few cases, we recommend that our clients establish a trust for their assets as they approach their sunset years. We all know that at some time in our lives, we may no longer be able to take care of ourselves or manage our own property. By establishing a trust, the Settlor avoids the possibility of having a guardian appointed, or a lot of the problems that come from banks and other financial institutions who refuse to accept a power of attorney (yes, it does happen). A Trustee has greater powers and flexibility to serve the beneficiaries, which in most cases of estate planning, starts with the Settlor. You owe it to yourself to contact our office to learn how a trust would be beneficial to you. Call now. Your initial consultation is free.
Inter vivos and testamentary Trusts.
When establishing a trust, it is either inter vivos (while you are alive) or testamentary (via a Last Will and Testament). We know how to establish both inter vivos and testamentary trusts, and when it is to your benefit to have either, or both, a inter vivos and testamentary trust.
An inter vivos trust or “living trust” is where property is moved into the trust while the grantor is still alive. Some websites may refer to an inter vivos trust as a “will substitute.” However, we at Shechtel and Associates, P.A. caution you not to be fooled. An inter vivos trust is not a Last Will and Testament Substitute. Even if you have a Trust, you should also have a Last Will and Testament. Why? As we have noted before, none of us knows how we are going to die or under what circumstances. Upon your death, you could own assets that are not held in trust, and those assets, absent a Last Will and Testament, will pass via intestate succession. That could including any insurance settlement that may arise after your death (like from a lawsuit, refund, inheritance, or otherwise).
The three main goals for having an inter vivos trust are: 1) to avoid probate; and, 2) to provide for someone to manage your property for you after you are no longer able to do so yourself; and, 3) privacy. Property held in trust rarely must be disclosed to third parties upon death (including the Government). Under most instances, property held in trust is not subject to probate laws, and can immediately be transferred upon death. Unfortunately, property held in a revocable trust will be included in your overall gross estate for the calculation as to whether your estate will be subjected to Federal estate and inheritance taxes. This is not so for irrevocable trusts that were properly drafted and administered. In some states, trust property is not subject to state estate and inheritance tax laws. You need to consult with us if your state excludes trust property from state estate and inheritance taxes.
A testamentary trust is a trust that comes into being upon your death that was drafted into a Last Will and Testament. Testamentary trusts are always found somewhere within a Last Will and Testament. Because they come into being upon death, a testamentary trust is deemed to be irrevocable (the testator is no longer around to make changes after death). Assets are not transferred into a testamentary trust until after the become available through the probate estate. It is therefore why a testamentary trust does not become subject to state or federal taxes until sometime after death when the trust assets are received by the trustee.
Because a testamentary trust comes into being only after trust assets are received by the trustee, testamentary trusts are not subject to probate. Testamentary trusts are separate entities for income tax purposes upon the receipt of assets by the Trustee. Changes in tax laws are frequent, and under the new American Taxpayer Relief Act of 2012 the un-distributable tax income under a trust was graduated from 15% to 39.6%.
Other types of Trusts
We are familiar with all kinds of trusts. Just to name a few: Charitable Remainder Trusts, Charitable Remainder Trusts, AB Trust, Rabbi trusts, By-Pass Trusts, Marital By Pass Trusts, Spousal Election Trusts, Children’s Trusts, Educational Trusts, Special Needs Trusts, Foundations, Generation Skipping Trusts, Credit Shelter Trusts, Crumme (Life Insurance) Trusts, Annuity Trusts, Grantor Retained Income Trusts (“GRIT”), Qualified Personal Residence Trusts (“QPRT”); Qualified Terminable Interest Property Trusts (“QTIP Trust”), Spendthrift Trusts, and more.
You owe it to yourself to telephone and speak with one of our attorneys to learn how a Trust would be beneficial for you. Upon contacting our office you will be given an Estate Planning Questionnaire. Our questionnaire will assist you in identifying what type of estate plan will best suit your particular situation or needs. We will then sit down with you (and your spouse if you both wish) and after we are both versed in what your needs, desires, and situation requires, we will make recommendations so that you can decide what’s best for you.