WHAT IS A TRUST AND DO I NEED ONE?
A Trust is an instrument through which one can control their assets not only while they are alive, but also direct how they are to be used after one dies. There are two primary categories, revocable and irrevocable. A revocable trust, also called a living trust is one that is flexible and can be altered, changed, modified and even revoked as long as you, the settlor (the person creating the trust), is still competent and alive. Assets can be added to it and removed from it at will without any tax consequences with few exceptions. An irrevocable trust is one that once formed, cannot be changed, altered, amended or terminated except under very rare instances. This type of trust requires, by definition, the settlor, you, to give up total control over the assets placed into it. The assets cannot be used for your benefit and you do not and will not have access to them. You have effectively given it away. There are few situations in my practice where I would recommend an irrevocable trust but, under the right circumstances, they can be very effective.
The revocable trust is more common and we use and recommend them regularly when there is a need for one. Anyone can have one, but we only recommend it to those that can truly benefit from it as trusts are expensive to establish. The most common situations in which we recommend a revocable trust are:
If you own property in another state(this eliminates the need to probate that asset in the other state upon your death);
- When an intended beneficiary is disabled such that they are receiving certain government benefits (these special trusts protect the beneficiary’s governmental benefits while also allowing these assets in the trust to be there should they need something not covered by the governmental benefits); and
- If you believe there is going to be trouble amongst your beneficiaries or that your beneficiaries are going to challenge your Last Will and Testament, a Revocable Trust gives you more security to know your wishes will be carried out.
This is not an exhaustive list of trusts or their uses but only a few examples of the common ones.