There are many types of trusts, each with their own goals and purposes. Some trusts are irrevocable and require you to give up control of your assets during your lifetime. Other trusts are revocable, and allow you to keep control the assets and make changes to the trust at any time.
All trusts name a trustee who manages the trust and the assets you place into it. The trustee of a revocable trust is usually the person making the trust, and the trust also names a successor trustee to take over when the trustee dies or can no longer mange his or her own affairs.
Many people use trusts to avoid probate. Both irrevocable and revocable trusts bypass the probate process. Probate is the court process that transfers ownership of your assets to your beneficiaries after you die. Most people want to avoid probate because it is expensive and time consuming. Any property you own at your death goes through probate. But when you put property into a trust, the trust owns the property – not you – so trust property doesn’t go through probate. This can save a huge headache -- as well as a lot of money-- for your survivors.
There are other ways to avoid probate, like transfer on death deeds, joint ownership, and beneficiary designations. Also, most states allow smaller estates to skip much of the probate process. So before you make a trust to avoid probate, you might want to learn more about whether your estate would be subject to probate and whether other probate avoidance devices might make sense for your situation.
If privacy is a concern to you, trusts are a good estate planning option. Probate processes are available to the public – so information about property that goes through probate is also available to the public. In contrast, trust property stays private because it never goes through probate. So if you do not want information about your estate to be available to the public when you die, you use a trust to keep it private. Only your trustee (and possibly the trust’s beneficiaries) will get information about trust property.
Trusts can also serve the purpose of keeping control of your assets even after your death. If you pass your assets to your beneficiaries through a will, they receive the assets when you die. If you use a trust instead, you can set it up so that beneficiaries receive their inheritance over time, when they reach a certain age, or when they meet certain conditions. The trustee you name in the trust controls and manages the property until he or she distributes it to the beneficiary. These types of trust – like special needs trusts, minor’s trusts, and spendthrift trusts – are useful to people who want to give their property to beneficiaries who cannot (yet) manage it themselves.
In a living trust, you can give your successor trustee the power to manage trust property if you become incapacitated. This can be a great comfort to those who anticipate being ill or who are reaching the end of life. The successor trustee will have the duty to manage the property for you, in your best interest. If you become able to manage your affairs again, you can take back control of your property. On the other hand, if you die, the successor trustee will become responsible for distributing the property according to the terms of your trust.
If you’re concerned about incapacity, consider learning more about the benefits of making durable powers of attorney for (finances and for health care) and a living will.
Some irrevocable trusts can also shield your assets from creditors during your lifetime. When you make an irrevocable trust, you give up all control of the property and you essentially give the property away. Because you no longer own it, your creditors can’t go after it. These types of trusts work well for people who have money to put away and who worry that someone may go after their money. For example, if you worry about sued you can keep some assets safe from lawsuits by putting them in an irrevocable trust. If this sounds like something that might make sense for your situation, see a lawyer for help because this type of trust must be drafted carefully – if you retain any control of the property, your creditors will be able to reach it.
You can create a simple living trust yourself, with the right self-help tools. But most trusts – especially irrevocable trust – are pretty complicated and it’s best to get help from an experienced trust and estates attorney.
