_location_geocentric domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /var/www/parklinlaw_c_usr/data/www/parklinlaw.com/wp-includes/functions.php on line 6114A trust is a legal document that creates a fiduciary relationship in which one party holds legal title to a beneficiary’s property for the benefit of the beneficiary. A trust can go into effect prior to death, in which case it is called a living trust (or inter vivo trust). Such a trust could be a revocable trust (the person who created the trust retains control and can change it), or an irrevocable trust (no changes allowed once it’s in effect).
A trust could go into effect after death, and is contained in a last will and testament is a testamentary trust. There are two types of testamentary trusts:
The following parties are involved in a testamentary trust:
All types of trusts are tools for asset protection. People choose to create a testamentary trust for two reasons:
A testamentary trust can specify when a beneficiary receives money and how much they will receive. For example, it could specify that young children receive payments from the trust once they reach a certain age. It can also specify that they receive a certain amount in the early years and a greater amount later (or vice versa).
A settlor may choose to create a family testamentary trust, instead of separate trusts, if they suspect that one beneficiary may need more support over time than other beneficiaries. Such an arrangement can allow the trustee more discretion in how funds are used for the benefit of the beneficiaries.
Assets held in a previously established trust transfer to the trust beneficiaries immediately upon the death of the settlor. Trusts generally avoid the probate process.
A will must go through the probate process. The testamentary trust will come into effect upon the completion of probate, which can be time-consuming and can expose assets to estate tax.
A testamentary trust is not automatically created upon the settlor’s death. The first legal document to take effect is the last will and testament. The testamentary trust must be contained in the settlor’s final will. To create a testamentary trust, the settlor must designate a trustee (and possibly successor trustees) as well as beneficiaries of the trust. The document that creates the trust should also state which assets will enter the trust — real estate, life insurance proceeds, bank accounts, all assets of the estate, etc.
During the probate process, the provisions of the trust are reviewed by all parties. The executor of the will transfers assets into a trust fund. Then the trustee manages the trust assets until the trust terminates. The trustee may be required to report to the probate court on a regular schedule to satisfy the court that trust funds are being handled in accordance with the will and state law
Jim has a 3-year-old daughter, Amy, and he wants her to receive his assets after he dies. In his will, he states that he is creating a testamentary trust. He designates his brother, Bob, as the initial trustee and his mother as a successor trustee. The trust document specified in the will says that Bob will manage the trust property and assets for the benefit of Amy until she reaches the age of 21. Bob will give Amy a monthly income for education and expenses. When she turns 21, she will receive the remaining assets and the trust will terminate.
If you make a living trust, you might well think that you don’t need to also make a will. After all, a living trust basically serves the same purpose as a will: it’s a legal document in which you leave your property to whomever you choose. (The advantage of a living trust over a will is that property left through a trust doesn’t have to go through probate court after your death, saving your family lots of time and money.)
But even if you make a living trust, you should make a will as well. There are two main reasons.
One big reason to write a will is that a living trust covers only property you have transferred, in writing, to the trust. Almost no one transfers everything to a trust. And even if you do scrupulously try to transfer everything, there’s always the chance you’ll acquire property shortly before you die. If you don’t think to (or aren’t able to) transfer ownership of it to your living trust, it won’t pass under the terms of the trust document.
Second, a will can do some important things that a living trust document cannot. For example, in many states if you have minor children and want to name a guardian for them—someone to raise them if you and the other parent die before they reach adulthood—you must use a will. You can’t use your living trust. You can also use a will to forgive (cancel) debts owed to you, something that isn’t done in a trust document.
The good news is that if you use a living trust as your primary way to leave property, all you need is a bare-bones will. In it, state who should inherit any property that you don’t specifically transfer to your living trust or leave to someone in some other way. One kind of simple will is called a “pour-over” will, so named because it directs that all your remaining property be poured over into your living trust. That property must still go through probate on the way to your trust, however.
Short answer: Yes, you can have both a Will and a Living Trust because they do two different things. Trusts provide for the management and distribution of your assets during lifetime and after death. A Will, on the other hand, allows you to do things like name guardians for your children, appoint an executor for your estate, and declare your final wishes. So what’s actually more crucial to understand is the type of Will to have with a Living Trust so that you can have the most comprehensive Estate Plan.
Let’s say you have both a Last Will and a Living Trust. This is not necessarily recommended and here’s why: The assets that are included only in your Last Will will likely have to go through an extensive probate process. Not to mention, Last Wills are public documents. Conversely, the assets included in a Trust are typically protected from probate court.
Note that a Living Will is also different from a Last Will and a Pour Over Will (and yes, we know the names can get confusing). A Living Will refers to a set of documents related to an individual’s medical decisions. Included in those documents are:
Just because you take the time to create a Will, it doesn’t mean your estate will avoid probate. Probate is the process your estate goes through after you pass away if you haven’t done proper or comprehensive Estate Planning. It is a court-supervised proceeding, and depending on how solid your Estate Plan is, can be costly and take a long time. However, there are many ways you can simplify, or even eliminate all together, the probate process. One of the most effective ways to make it easier on those you leave behind is by creating a Trust as part of your Estate Planning. Anything you put inside your Trust can be passed down while avoiding probate. And, a big benefit to having a Trust is distribution of assets remains private, whereas distributing assets through a Will and probate are public.
When do Trusts and Wills go into Effect?
Your Last Will and Testament takes effect once you pass. At that time, someone must notify the court to begin the probate process. The subsequent events that take place in effort to settle your estate and distribute property and assets can take a long time and be expensive. Another (rather big) point to consider is that since your Will only takes effect after you pass away, if you become incapacitated and unable to make decisions for yourself, you have no recourse or plan as directed by your Will. On its own, a Will is essentially useless while you’re alive. This means a Will, on its own, is not an effective end-of-life planning tool.
Because a Trust instantly takes effect as soon as you sign it, it can simplify the process for those around you. But it’s very different from a Will in that your Trust not only plans for after you die – it’s a document intended to have an impact while you’re still living. A Trust can set provisions for things like what you want to have happen if you become mentally or physically unable to make your own decisions. It protects loved ones from having to make decisions about the unthinkable. Most importantly, a Trust can make sure your wishes are known, during your lifetime and after you pass, so the stress of wondering what you would want can be completely removed from the equation. Planning for the future is important on so many levels.
Revocable trusts, also referred to as revocable living trusts, allow you to maintain control of your assets during your lifetime. You can change or dissolve a revocable trust if necessary. This is why they are “revocable” trusts — you can “revoke” them. For example, if you go through a divorce or acquire new assets, you may need to update the terms of the trust to reflect the consequences of those events.
A revocable trust offers flexibility, since the transfer of assets and the guidelines you’ve specified for the handling of those assets doesn’t become permanent until you pass away. With a revocable trust, you have the option to name yourself the trustee or co-trustee and choose someone to act as a successor trustee when you die or if you’re otherwise unable to manage the trust.
Revocable trusts aren’t subject to probate. That means the assets in the trust go to beneficiaries without having to pass through the probate court. This allows for greater privacy than a will. And it can be more difficult for creditors to claim assets held in a revocable trust in order to satisfy any outstanding debts you may have.
Once you establish an irrevocable trust, you cannot change or modify it in any way. If you transfer real estate or other assets you own to the trust, you can’t undo that action. Given that this means less flexibility, why establish one in the first place? One main benefit is that it can work as a safeguard. “An irrevocable trust would typically be used to create a safe haven for the placement of assets. “These trusts may protect assets from claims of creditors, beneficiaries or even Medicaid.” Additionally, an irrevocable trust can also remove certain assets from your estate, sheltering them from estate and gift tax. That may be appealing if you have a large estate and need a way to minimize tax liability on those assets.
Beyond those two broad categories, there are a number of different specialty trusts you can incorporate into your estate plan. The type of trust that’s appropriate depends largely on what you need the trust to do.
A marital trust (or “A” trust) can be established by one spouse for the benefit of the other. When the first spouse passes away, assets in the trust, along with any income the assets generate, are passed on to the surviving spouse. A marital trust would allow the surviving spouse to avoid paying estate taxes on those assets during their lifetime. The surviving spouse’s heirs, however, would be responsible for paying estate taxes on any remaining trust assets that eventually go to them.
Married couples may also establish a bypass or credit shelter trust (also known as “B” trust) to reduce the estate tax impact for their heirs. This is a type of irrevocable trust that transfers assets directly from one spouse to another at the time of the first spouse’s death. The surviving spouse, however, doesn’t hold the assets directly. The trustee manages them instead, which allows those assets to avoid going into the spouse’s estate. When the surviving spouse dies, any remaining assets goes to their beneficiaries, free of estate tax.
A charitable trust helps you to create a legacy of giving within your estate plan. There are two types of charitable trusts you can establish: a charitable lead trust and a charitable remainder trust. A charitable lead trust allows you to earmark certain assets for a specific charity or charities, with the rest of your assets going to your beneficiaries when you pass away. A charitable remainder trust allows you to receive income from your assets for a set period of time, with any remaining assets or income going to a charity that you designate.
If you’d rather transfer assets to your grandchildren than your children, you can choose a generation-skipping trust. This type of trust lets you pass assets to your grandchildren, allowing your children to avoid paying estate taxes on those assets in the process. At the same time, you still have the option to allow your children access to any income that the assets generate.
A life insurance trust is an irrevocable trust that you designate specifically to hold life insurance proceeds. You designate the trust as the beneficiary of your life insurance policy; when you die, the policy proceeds go into the trust. The trustee then manages the proceeds on behalf of your beneficiaries. The advantage of an irrevocable life insurance trust is that it allows you to avoid estate taxes on life insurance payouts.
A special needs trust can help financially provide for a special needs dependent, such as a child, sibling or parent. It does this without compromising their ability to receive government benefits for their disability. The money in the trust allows them to pay for medical care or day-to-day needs while also allowing them to remain eligible for government benefits.
A spendthrift trust may give you peace of mind if you’re concerned about your heirs frittering away their inheritance. This type of trust allows you to specify when and how principal trust assets can be accessed by the trust beneficiaries. The purpose of this is to prevent misuse. For instance, you may restrict beneficiaries to only benefiting from the income or interest earned by trust assets, but not the principal amount of the assets themselves.
A testamentary trust, or will trust, is established through a last will and testament. Once you pass away, the trust becomes irrevocable. The main function of a testamentary trust is to ensure that beneficiaries can only access trust assets at a predetermined time.
A Totten trust, also known as a payable-on-death account, lets you put money into a bank account or other security. When you die, the money that you’ve set aside is passed on to the named beneficiary of the account.
