Trusts

What is a Trust?

A Trust is an arrangement by which one or more individuals (sometimes called a Trustor , a Settlor, or a Grantor) transfers assets to one or more other individuals or business entities (the Trustee) with directions regarding how the Trustee should hold, manage, invest, and distribute those assets for the benefit of one or more other individuals (the Beneficiary). Typical forms of trusts include:

LIVING TRUST: This is a revocable/amendable trust created and funded by the Trustor during the Trustor’s lifetime which typically provides how the Trustee is to administer and distribute the Trust assets, usually for the benefit of the Trustor, during his or her lifetime (including during any period of time that the Trustor might be incapacitated) and, upon the Trustor’s death, for the benefit of the Trustor’s Beneficiary(s).

Advantages of a Living Trust:

  • Avoid the Need for a Conservatorship Proceeding: If the Trustor who has established and funded a “Living Trust” becomes incapacitated, the “Living Trust” typically permits the Trustee (or a Successor Trustee if the Trustor was the initial Trustee) to continue to manage the Trust assets for the benefit of the Trustor without the need for a Conservatorship or other court proceeding. (Of course, sometimes the Trustor can accomplish the same result with a Durable General Power of Attorney.)
  • Avoid the Need to Probate the Trustor’s Will: If all of the Trustor’s assets are in the Trust at the time of the Trustor’s death, there may be no need to probate the Trustor’s Will or to go through any court proceedings. Depending upon the state where the Trustor is domiciled at death, this may result in significant (or only nominal) savings in time and expense.
  • Avoid Publicity: Whereas a probated Will is a public document, a Trust – or at least the dispositive terms of the Trust – ordinarily can be kept private.
  • Speed of Distributions at Death: Whereas probate proceedings in some states can entail considerable delay in the distribution of Estate assets, Trusts frequently can proceed to distribute some or all of the Trust assets with little delay attributable to the death of the Trustor.

Disadvantages of a Living Trust:

  • Outright Distribution to Beneficiaries: There are a few disadvantages of a “Living Trust”, particularly if the Trustor intends that, at the death of the Trustor, all of the Trust assets are to be distributed outright to the Beneficiaries (rather than having the assets remain in Trust for those Beneficiaries).
  • Cost: The present cost of setting up the Trust, funding it, and maintaining it may be greater than any future savings (e.g., avoidance of probate costs at death).
  • Inconvenience: It can be inconvenient and a general “hassle” to transfer all assets into a Trust and to make sure all subsequently acquired assets are titled in the name of the Trust. Often clients create and fund a “Living Trust,” but because they forget to transfer subsequently-acquired assets into the Trust, they still may need to probate their Wills at death to deal with those assets still titled in their individual names.

Irrevocable Trusts:

IRREVOCABLE TRUSTS: An irrevocable trust is a trust that, upon becoming irrevocable, may no longer be amended or revoked by the Trustor. Irrevocable trusts generally fall into the following two distinct categories:

  • IRREVOCABLE TRUSTS AT THE OUTSET: Occasionally, trusts are designed to be irrevocable from inception. Typically, these are trusts that are created by a Trustor who wants to make lifetime gifts into trust. The gifts can be for both the immediate and/or future benefit of the trust Beneficiaries, but for certain reasons (often for tax planning) the Trustor does not want to retain the ability to amend or revoke the trust once it has been created and funded.
  • REVOCABLE TRUSTS THAT LATER BECOME IRREVOCABLE: Revocable “living” trusts are used routinely in estate planning. During a Trustor’s lifetime, the Trustor may amend or revoke the Trust. Upon the death of the Trustor, however, most such trusts become irrevocable – they may no longer be amended or revoked by the Trustee or the Trust Beneficiaries. At that point, the Trustee is to administer the Trust as it was written (and perhaps amended) by the Trustor prior to the Trustor’s death.
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