What is the first thing that comes to mind when you think of a trust? To many, trusts are thought to be reserved for the extravagantly wealthy. While it may be true that wealthy individuals will oftentimes have trusts set up for their benefit, they are far from the only ones who can benefit from a trust.
Trusts are often misunderstood. A trust is nothing more than a distinct legal entity created by contract. A trust is created when one party, the Settlor, wishes for another party, the Trustee, to hold certain assets, property, or finances “in trust” for a third party, the Beneficiary.
One of the more common types of trust is known as a Revocable Living Trust (“RLT”). It is “living” because the Settlor creates it while they are alive (as opposed to a testamentary trust created at death). It is “revocable” because the Settlor has the option to change, add to, take from, or end the Trust at any time and for whatever reason. More often than not, the Settlor and the Trustee are the same person while the Settlor is still alive. The living Trust only becomes “irrevocable” when the Settlor dies. Generally, upon the Settlor’s death, the successor Trustee—usually a bank or an individual who has good management skills—assumes the Trustee position. The foregoing in only a common example, however, and certain situations and trust terms may alter the dynamics of the Trust.
Many individuals can benefit from forming a RLT. First and foremost, RLTs enable you, the Settlor, to provide for your loved ones when you pass. In this way, a RLT is very similar to a Will. A Trust will outline your wishes as to who gets what. However, one of the greatest benefits of a RLT is probate avoidance. Assets that are properly titled and held in a RLT do not go through the probate process after the Settlor dies. In addition, the contents of RLTs are not public record, while probate records generally are. Thus, RLTs provides some confidentiality when it comes to what you own.
Depending on your wishes, RLTs also tend to lessen the time it takes to distribute your assets when you die. The probate process can be emotional, expensive, and time consuming. By avoiding probate with a RLT, the Trustee of the Trust may be able to distribute the Trust assets to your beneficiaries more quickly because Trusts do not require court supervision in asset distribution like the probate process does.
It is also important to note what a Trust does not do. It is a common misunderstanding that Trusts will enable a Settlor to save or avoid income taxes. They do not. Generally, the state and federal governments view any income generated from assets in a RLT to be akin to the Settlor’s income. Trusts do not replace the need for a Will, either. We encourage our clients who have Trusts to also have us create what is known as a “Pour-over Will.” This document ensures that the Settlor’s remaining assets not owned by the Trust will “pour-over” into the Trust when the Settlor dies. This is a fail-safe measure that we create because Settlors will often forget to title or transfer certain assets in the Trust’s name after they create the Trust. If no Pour-over Will exists, whatever assets the Settlor owns that are not within the Trust will likely have to be probated.
Our experienced attorneys at Levine Eisberner LLC can assist you in drafting an estate plan that adequately reflects and properly expresses your wishes. Call us now for a consultation!