Trusts are incredible flexible and versatile documents that can be crafted to each unique situation. They can be used to avoid or delay taxes or to make sure taxes are paid so your beneficiaries don’t have to.
They can be revocable or irrevocable. Revocable trusts are basically treated as though they are owned by their creator who can still do anything they want to the property including buy more, sell it, or give it away. Revocable living trusts address three basic scenarios:
- While alive and well: The trust makes clear that while the settlor is alive and well, he or she will serve as trustee and manage trust assets for his or her own benefit.
- If incapacitated: If the settlor becomes ill or injured to the extent that he cannot manage his finances, the trust identifies who will take over as trustee, and directs the successor trustee how to manage trust assets.
- After death: The trust directs the successor trustee how to distribute remaining trust assets after the settlor dies. This can mean the trust continues for years after death to fulfill the settlor’s wishes such as paying for children’s education, paying the kids over time instead of all at once, or separating into different divisions based on each beneficiary’s needs.
Irrevocable trusts can also be created but they generally cannot be changed or terminated by their creator, the trustor. A couple might create an irrevocable supplemental needs trust to take care of their child with disabilities while preserving the child’s qualification for governmental aid. A couple may also decide to create an irrevocable trust because they do not need the assets and want to protect them from creditors and pass them to their children. A person may also want to create a charitable remainder trust so that they can use a property while they are alive but then it passes to charity, removing an asset from their taxable estate and from creditors.
A thorough discussion with an experienced attorney is necessary to evaluate whether a trust is right for your situation.