Trusts

What is a trust?

A trust is a legal arrangement in which one party (the settlor, grantor, or trustor) transfers ownership of assets to another party (the trustee) for the benefit of a third party (the beneficiary or beneficiaries). Trusts are versatile estate planning tools that can serve various purposes, including asset management, wealth transfer, asset protection, and charitable giving.

Here are the key elements and participants in a trust:

Settlor (Grantor or Trustor): The individual who creates the trust and transfers assets into it. The settlor establishes the terms of the trust and outlines how the trust assets should be managed and distributed.
Trustee: The person or entity responsible for managing the trust assets according to the terms specified in the trust document and in the best interests of the beneficiaries. The trustee has a fiduciary duty to act prudently and in accordance with the trust's instructions.
Beneficiary or Beneficiaries: The individual(s) or entity(ies) who benefit from the trust. Beneficiaries may receive income generated by the trust assets, distributions of trust principal, or other specified benefits according to the terms of the trust.
Trust Property or Assets: The assets transferred into the trust by the settlor, which may include cash, securities, real estate, business interests, or other types of property.

Trusts can be classified into two broad categories based on their timing and purpose:

Living Trusts (Inter Vivos Trusts): Created during the settlor's lifetime and can be revocable or irrevocable. Living trusts can be used for various purposes, including asset management, incapacity planning, and probate avoidance.
Testamentary Trusts: Established through the settlor's will and come into effect upon the settlor's death. Testamentary trusts are often used for purposes such as minor children's financial management, asset protection, or charitable giving.

Trusts offer numerous benefits, including flexibility, privacy, probate avoidance, asset protection, and tax planning opportunities.

A trust is a legal relationship in which one person, the trustee, holds and manages property for the benefit of another, the beneficiary. The property can be any kind of real or personal property–money, real estate, stocks, bonds, collections, business interests, personal possessions and automobiles. Trusts are often established by a person for his/her benefit or the benefit of another. Trusts generally involve at least three parties: the grantor is the person who creates the trust (a/k/a settlor or donor), the trustee is the person who holds and manages the property for the benefit of the grantor and other beneficiaries, and the beneficiary(ies) who is the person(s) entitled to the benefits. Essentially a trust is a contract between the grantor, trustee and beneficiaries whereby the grantor gives the trustee assets to hold, manage and distribute per the terms of the trust.

By adding property to a trust you transfer property from your personal ownership to the trustee who holds the property for you. The trustee has legal title to the trust property, but trustees are not the full owners of the property. Trustees have a legal duty to use the property as provided in the trust agreement and permitted by law. The beneficiaries retain what is known as equitable title, the right to benefit from the property as specified in the trust.

In most revocable living trusts the grantor is also the trustee and the initial beneficiary. As trustee and beneficiary, the grantor retains the same rights of ownership he/she had when the assets were still in his/her name. A grantor who is also trustee and initial beneficiary can buy anything and add it to the trust, sell anything out of the trust, and give trust property to whomever they wish.

Our Trust Practice

Trust practice includes, but is not limited to:

Living Trusts – A living trust, also known as an inter vivos trust, is a legal arrangement in which a person (the grantor) transfers ownership of assets into a trust during their lifetime. The grantor typically serves as the initial trustee of the living trust, managing the trust assets for their own benefit while they are alive. Upon the grantor's death the trust assets are then transferred to designated beneficiaries according to the terms specified in the trust document.

Revocable Trusts – A revocable trust, also known as a revocable living trust or revocable inter vivos trust, is a legal arrangement where a person, known as the grantor or settlor, transfers ownership of assets into a trust during their lifetime and retains the ability to modify, amend, or revoke the trust at any time. In a revocable trust, the grantor typically also serves as the initial trustee, managing the trust assets for their own benefit during their lifetime.

Irrevocable Trusts – An irrevocable trust is a type of trust in which the terms cannot be amended, modified, or revoked once it is established, except in limited circumstances and with the consent of all beneficiaries. Once assets are transferred into an irrevocable trust, they are considered separate from the grantor's estate and are no longer under the grantor's control.

Testamentary Trusts – A testamentary trust is a type of trust that is created through a person's last will and testament and comes into effect upon the person's death. Unlike a living trust, which is created during the grantor's lifetime, a testamentary trust is established after the grantor passes away and is specified within their will.

Spendthrift Trusts – Spendthrift trusts (Asset Protection) are commonly used in estate planning to provide financial support and protection for beneficiaries who may be unable to manage their own finances responsibly or who may be at risk of creditors' claims.

Discretionary Trusts – A discretionary trust is a type of trust in which the trustee has discretion over how to distribute the trust's assets to the beneficiaries. Unlike other types of trusts where distributions are mandated or specific, in a discretionary trust, the trustee has the authority to determine when and how much income or principal to distribute to each beneficiary.

Sprinkle Trusts - A sprinkle trust provision, also known as a spray provision or sprinkling provision, is a feature of certain types of trusts that allows the trustee to have discretion in distributing trust assets among multiple beneficiaries. Rather than specifying fixed amounts or percentages for each beneficiary, a sprinkle trust provision grants the trustee the authority to distribute trust income or principal according to the trustee's judgment and based on the beneficiaries' needs, circumstances, or other criteria outlined in the trust agreement.

Legacy Trusts - A legacy trust is a legal entity created to manage and distribute assets for the benefit of future generations. Unlike other types of trusts that may focus on specific individuals or purposes, a legacy trust typically spans multiple generations and aims to preserve wealth or values for the long term.

Support Trusts – A support trust, also known as a support provision within a trust, is a legal arrangement where the trustee is directed to distribute trust assets to one or more beneficiaries for their support and maintenance. Unlike a discretionary trust, where the trustee has broad discretion over distributions, a support trust imposes a duty on the trustee to make distributions for the specified needs of the beneficiaries.

Special Needs Trusts – A special needs trust, also known as a supplemental needs trust, is a legal arrangement designed to provide financial support and resources for individuals with disabilities without jeopardizing their eligibility for government benefits such as Medicaid and Supplemental Security Income (SSI).

Pet Trusts – A pet trust is a legal arrangement that allows pet owners to provide for the care and maintenance of their beloved animals after their own incapacity or death. In a pet trust, the pet owner (grantor) designates a trustee and sets aside funds or assets specifically for the care of their pets in the even that they can no longer care for them.

Charitable Trusts – A charitable trust is a legal entity set up to hold and manage assets for charitable purposes. Charitable Trust are primarily use for estate tax planning because if drafted correctly, the trust can be used to reduce or eliminate estate taxes and/or income taxes.

Charitable Remainder Trust – A Charitable Remainder Trust (CRT) is a tax-exempt irrevocable trust that provides income to beneficiaries (often the grantor or other designated individuals) for a specified period. The remaining assets ultimately benefit one or more charitable organizations.
Charitable Lead Trust – A Charitable Lead Trust (CLT) is an irrevocable trust that provides income payments to one or more charitable organizations for a specified period. The remaining assets eventually pass to non-charitable beneficiaries, such as family members or designated heirs.

Intentionally Defective Grantor Trusts – An Intentionally Defective Grantor Trust (IDGT) takes assets outside the grantor's estate for estate tax purposes but is drafted so that income generated from the trust is taxable to the grantor. An IDGT allows the grantor to gift or sell assets to the trust and any appreciation grows tax free. Payment of income tax by the grantor allows the trust principal to grow and is not considered an additional taxable gift to the beneficiaries.

A Spousal Limited Access Trusts (SLAT) – is an estate tax planning tool that allows one spouse (the donor spouse) to transfer assets into an irrevocable trust for the benefit of the other spouse (the beneficiary spouse), as well as potentially other family members, while still maintaining some access to the trust assets. SLATs are commonly used to take advantage of estate tax exemptions and provide financial security for the beneficiary spouse and family.

Irrevocable Life Insurance Trusts - An Irrevocable Life Insurance Trust (ILIT) is a trust created to hold a life insurance policy. The purpose of an ILIT is to move money out of the grantor's taxable estate and provide liquidity at death. In large taxable estates, the cash proceeds may be used to pay federal and/or state level estate taxes. In smaller estates, the insurance policy proceeds can be used to provide for family members and satisfy outstanding debts. This type of trust is particularly useful for family-owned businesses to create liquidity to continue the business or to allow family members to buy each other members out of their shares.

Qualified Personal Residence Trusts – A Qualified Personal Residence Trust (QPRT) is an irrevocable trust used for estate tax planning to hold a residence or vacation home. The grantor gifts the home to a QPRT but retains the right to live in the house for a stated period of time. At the end of the term, the home is transferred to the grantor's children or other named beneficiaries. In this way the grantor removes the home from his or her taxable estate and any appreciation in the property grows tax free.

Grantor Retained Annuity Trusts – A Grantor Retained Annuity Trust (GRAT) is used to remove assets out of the grantor's taxable estate by gifting the assets to family members without having to use any portion of the federal estate tax exemption. In exchange for the gift to the irrevocable trust, the grantor retains the right to an annuity for a specific term of years.

Generation-Skipping Transfer Trust – A GST trust, also known as a Generation-Skipping Transfer trust, is a type of trust designed to minimize or avoid the generation-skipping transfer tax (“GST”).

Credit Shelter Trusts (Bypass Trusts) – Credit Shelter, Bypass, Qualified Terminal Interest Property Trusts are trusts designed to minimize or avoid the federal or state estate taxes.

Qualified Terminal Interest Property Trusts – A Qualified Terminal Interest Property Trust (QTIP Trust) allows a surviving spouse to benefit from income generated by the trust assets during their lifetime while ensuring that the principal passes to beneficiaries chosen by the deceased spouse upon the surviving spouse's death. If drafted correctly, a QTIP Trust can generate substantial estate tax savings.

Substance Abuse Trusts – A substance abuse trust is a legal arrangement set up to manage assets for the benefit of someone struggling with substance abuse issues. The purpose of a substance abuse trust is to provide financial support to the individual while also safeguarding the assets from being misused to fuel their addiction.

Revocable Living Trust vs. Last Will and Testament – The decision between a Last Will and Testament and a Revocable Living Trust depends on your circumstances, estate size, complexity, and asset distribution and management goals. Consulting with an experienced estate planning attorney can help you evaluate the best option to meet your needs and ensure your wishes are carried out effectively.

Third-party Spendthrift Trusts – A third-party spendthrift trust is a type of trust setup by Grantor to protect the assets held within it from being squandered by the beneficiary or seized by their creditors. The trust can be a stand-alone trust or the spendthrift provisions can be contained in one of Grantor's other trusts. In a spendthrift trust, the trustee has control over the distribution of funds, rather than the beneficiary directly. This arrangement helps safeguard the assets for the beneficiary's long-term financial well-being.

Medicaid Qualifying Trusts – Under certain circumstance a Medicaid Qualifying Trust can be utilized to protect a person from spending all of his/her assets on long term care. Medicaid trusts are irrevocable trusts that allow the grantor to protect the principal of the trust from a Medicaid spend down and from the exorbitant cost of long-term care.

WHAT ARE SOME BENFITS OF TRUSTS?

Asset Management: The grantor can manage their assets placed in a living trust for their benefit during their lifetime. This includes investment management and the ability to use the assets as they see fit.
Avoidance of Probate: One of the primary benefits of a living trust is that it can help avoid probate.
Incapacity Planning: Living trusts can provide continuity of management and asset distribution in case the grantor becomes incapacitated. They are also used to provide for beneficiaries who cannot manage their own assets.
Asset Protection: Assets placed into an irrevocable trust are typically shielded from creditors and legal claims against the grantor. Trusts can also be used to shield the trust assets of the beneficiaries from their creditors.
Tax Planning: Trusts are commonly used as a tool for income and estate tax planning.
Medicaid Planning: Trusts are often used as part of Medicaid planning to help individuals qualify for Medicaid benefits while protecting assets from being counted as part of their estate.
Privacy: Unlike probate proceedings, which are matters of public record, the administration of a living trust generally occurs privately, without the need for court involvement.
Substance Abuse Planning: Trusts are often used to protect the inheritance of family members with substance abuse issues.
Business Succession Planning: Trusts are often used to ensure the continuity of the business, and minimizing disruptions during the transition after the death of the principal owner.

Contact Will and Trust Planning Today

For personalized advice on estate planning, including strategies to minimize or avoid probate, contact Will and Trust Planning today. Our experienced estate planning attorneys can help you understand your options, draft essential documents, and create a plan that protects your assets and achieves your goals.