When you think of estate planning, the first thing that likely comes to your mind is creating and executing a Last Will and Testament. A Last Will and Testament is the most common estate planning document, typically serving as the foundation of an estate plan. A comprehensive estate plan, however, usually includes a variety of additional documents and strategies aimed at achieving the numerous estate planning goals and objectives you have set for yourself. Among those additional documents, a trust is one of the most popular additions to a well-rounded estate plan. Trusts have increased in popularity over the past several decades in large part because of the flexible nature of a trust. If you are considering the addition of a trust to your estate plan, you may be wondering how to get started creating your trust. For example, can an estate planning attorney help in setting up a trust if you do decide that your estate plan could benefit from the addition of a trust?
What Is a Trust?
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Trustor, who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. A beneficiary can be an individual, an organization, or even the family pet. In addition, a beneficiary can be a current beneficiary or a future beneficiary.
Testamentary vs. Living Trusts
Trusts can be broadly divided first into two categories, testamentary and inter vivos (more commonly referred to as “living”) trusts. A testamentary trust is one that does not take effect until the death of the Settlor and is usually triggered by the Settlor’s Last Will and Testament by going through probate. A living trust, on the other hand, is a trust that takes effect as soon as all formalities of creation are in place and the trust is funded, thereby avoiding probate.
Revocable and Irrevocable Trusts
Living trusts can be further sub-divided into revocable and irrevocable living trusts. A revocable living trust is one that can be changed, amended, revoked or modified by the Trustor of the trust at any time and for any reason, or for no reason at all. An irrevocable living trust, on the other hand, cannot be changed, amended, modified or revoked for any reason by the Trustor, except as reserved by the Trustor. Because a testamentary trust is triggered by a Will, a testamentary trust remains a revocable trust until the trust actually activates upon the death of the Trustor, at which point it becomes an irrevocable trust.
Why Would You Want a Trust in Your Estate Plan?
Although once used primarily by wealthy families as a way to pass down the family wealth without losing control over that wealth and without incurring taxes on the transfer of wealth, trusts have evolved over the last century to the point where they are now commonly used by the average person as part of a comprehensive estate plan. Trusts are popular because they can accomplish so many estate planning goals, such as:
- Protecting assets when you need to qualify for Medicaid benefits
- Protecting assets for a child with special needs
- Avoiding probate
- Reducing your estate’s exposure to taxes
- Providing for a spouse while preserving assets for children from a previous marriage
- Providing for a non-citizen spouse
- Disbursing assets to beneficiaries slowly over time instead of in a lump sum
- Protecting assets in the event of a divorce by a child
Setting Up a Trust
The language used in a trust agreement often makes the difference between the creation of a successful trust and an unsuccessful trust. In fact, sometimes using the wrong language can completely invalidate the trust agreement and/or thwart the purpose of trust creation. For these reasons, it is in your best interest to work closely with an experienced estate planning attorney when setting up a trust.
For more information, please join us for an upcoming FREE seminar. If you have additional questions about setting up a trust, contact the experienced North Dakota estate planning attorneys at German Law Group by calling 701-738-0060 to schedule an appointment.