What is a trust?

People try to exercise prudent judgment every day in the decisions we make, especially those which effect our families. We purchase life insurance, fire insurance, deadbolts for our home, extra batteries, security systems, even spare tires. We do not expect a fire, but it's a good idea to have insurance. There is one glaring omission most people make: ensuring personal and financial privacy. One way to ensure privacy in your Estate Plan is to make a Living Trust. This is an alternative device to a Will, and a much wiser decision in most all cases. It is not an "asset" protection vehicle. If asset protection is an issue, please contact Affiliated Legal Services directly.

A Trust is a legal document that resembles a Will only to the extent that it contains your instructions for the distribution of your assets when you die. Trusts can be broadly categorized as testamentary trusts or living trusts. A testamentary trust (as discussed above) is created within the Last Will and Testament, and takes effect only upon your death. A Living Trust is a trust created during your lifetime, and is effective, during that lifetime.

A trust is an arrangement in which property or other assets are transferred with the intention that they be administered by a trustee for another's benefit. The person whom the trust is intended to benefit is called the beneficiary. The trustee acts for the benefit of the beneficiaries and has control of the assets transferred to the trust. A Trust can be created for any legal purpose which does not violate public policy. The essential elements of a Trust are fairly consistent among the states, and include designation of one or more beneficiary (ies) and one or more trustee(s), property which is transferred to the Trust, called "funding" the trust, which is sufficient to enable the trustee to take title to the property, and there must be actual delivery of the property to the trustee with the intention of passing title. An attorney knowledgeable in the area of Estate and Trust law can discuss with you various types and purposes of trusts.

Avoiding the probate process

Can I avoid the probate process?
Is probate time consuming and expensive?

Probate is the court action by which assets are transferred to heirs after a death when the deceased left a Will, or, where no Will is left, according to the state law of Intestate Succession. Probate is generally NOT necessary at all where a Living Trust has been done. Unless property has been left out of the Trust, a probate is not required. If property has not been placed into a Trust, the asset left out, is all that needs to go through probate.

Probate actions are very costly and time consuming. Fees must be paid to the executor or administrator, and to the attorney representing the estate. Assets will not generally be distributed to heirs for 8 months to 2 years, and sometimes longer, and complicated estates involve much longer delays.

The foregoing should give a clear indication why Estate planning before death is so important, as in most if not all cases, a court probate action can be entirely avoided with competent Estate Planning.

First, a Living Trust must be considered. A "Living Trust" aka "Intervivos (during life) Revocable Living Trust", provides for the transfer of estate assets directly to the beneficiaries named in the trust, without any court action or intervention. Second, a Will with a minor's trust (testamentary trust) can be considered for small estates, with the thought of utilizing summary probate proceedings after death. However, testamentary trusts in Wills, require oversight of a probate court. Third, changes in the way you hold "title to property" may be considered, which would allow you to avoid having to include your real property in a probate action. These are not suggested for a variety of reasons, as joint title can create many other problems, and there are other alternatives.

Purpose of Trusts

Why should I have a Living Trust?
How do I have a Living Trust set up?
What is a trustee and what does a trustee do?

Trusts are methods of transferring assets to other entities or individuals, often for the purpose of saving or totally eliminating estate taxes. In a trust, its creator transfers specific responsibilities to a trustee, for the benefit of one or more beneficiaries. A trust is a formal legal document drafted by attorney David M. Roberts, ESQ., for the specific estate being dealt with, and addressing the concerns or problems as to that estate. It is a personalized Estate Planning document.

The length of the trust, the specific power and duties incurred by the trustee, and when the trust income and principal will be distributed to the beneficiaries are all determined when the trust is initially formulated; and these specifics are then incorporated (drafted) into the Trust document.

The benefits of a trust are almost too varied to describe here. For example, a Trust can reduce and in many cases eliminate estate taxes and provide for the professional management of your investments during your lifetime. A Trust protects your assets if you are unable to manage them yourself for some reason. A Trust can also collect and hold your assets for beneficiaries upon your death. Trusts are established based on the needs and goals of the creator. For example, a Living Trust is established and maintained during the creator's lifetime and may be changed, modified or even terminated or revoked during that time. An
Irrevocable Trust can be changed once it is established, but only by the person who set up the trust. A Trust that is created in a Will, only takes effect after a person's death is called a testamentary trust and can not be changed.

What are the Trustee's Powers

A trustee is the person whom is appointed by the creator of a Trust to manage and control the property or other assets placed in the Trust. If, for some reason, the trustee named in the trust cannot serve, an alternate who has been named in the Trust will act, and if there is no alternate named, a court can appoint a replacement trustee. The alternate has the same duties and obligations as the original trustee.

Trustees can be given very broad or very limited powers. The powers of a trustee are actually listed in a Trust document, and what powers a trustee has are determined by the creator of the trust. However, normally the trustee will be someone in whom the creator of the trust has great faith and confidence. In such cases, the creator of the trust will often give the trustee broad powers to allow the trustee the flexibility needed to act appropriately under a variety of circumstances.

A trustee is always under an obligation to manage the trust property in the best interests of the beneficiaries. That is why a trustee is described as having a "fiduciary” duty, meaning he has the highest duties of fidelity and loyalty to the Trust beneficiaries. The standard of that duty is typically based on the consideration of what a "reasonable person" would have done under the circumstances. More than one person can be named as trustee, in which case two or more will act as "co-trustees", and they must agree on all decisions. If they cannot agree, a court may have to resolve the conflict.

The trustee will distribute the trust property to the beneficiaries at the time designated by the trust. It is that simple. Sometimes the property will be distributed to beneficiaries when they reach a certain age, for instance, to minor children when they turn twenty-five (25). Sometimes the property will be distributed to the Beneficiaries upon the death of a certain person, for instance, to children after the death of a spouse. Or, the Trust may designate that assets or property be distributed upon the occurrence of an event, such as when a beneficiary graduates college. However, some contingencies are deemed to violate public policy. For
example, a distribution only if a surviving spouse remains unmarried. The trustee must provide an accounting of all the property either annually or at the time of a distribution.

What is a living trust?

What exactly is a Revocable Living Trust?
How does a Revocable Living Trust minimize or eliminate estate taxes?

A Revocable Inter-vivos Living Trust is a legal arrangement in which a person or persons retain, manage, control and eventually dispose of property for the benefit of another person. The person who established the trust and places the property into the Trust is known as the Grantor or Settlor of the trust. The person who retains, manages and controls the property in the Trust is called the trustee; and, the person for whose benefit the property is being retained, managed and controlled is called the beneficiary. It is possible for the same person to be Grantor, Trustee and a Beneficiary of the trust he or she creates.

Like a Will, a Living Trust is created while you are living. It differs from a Will, however, in that a Living Trust operates during you lifetime as well as after your death. A Will does not take effect until your death. A Living Trust can be used for the management of your property while you are alive. A Living Trust also allows the property in the Trust to pass to beneficiaries of your choice after your death without probate proceedings.

Placing assets and real property into a living trust does not mean that you lose control of these assets. In most cases, you can keep as much responsibility for the management and control of the trust property as you wish. A Living Trust may provide that the trustee shall not distribute the assets in the trust upon your death, but that the trustee shall continue to manage the property in trust for the beneficiaries of you choice in the event the beneficiaries are minors, disabled or have other special needs.

The specific instructions, directions or limitation imposed on the trustee in the management and distribution of the estate assets can vary widely depending upon the specific concerns, needs, and goals of the Grantor/Settlor who creates the trust.

A Trust for A minor Child

***Having children under 18 years old should lead you to consider a Minor's Trust.***

What are the benefits of a Minor's Trust?

If you have minor children (under eighteen (18) years of age, depending on state law), the court will require that all financial assets passing directly to them be put in a blocked account and only in extremely low risk investments such as certificates of deposit. Generally, such assets cannot be invested in the stock market and no changes, not even moving the funds to another bank is permitted without court approval, which can be costly and delay decisions. However, when it comes to protecting assets for a minor child, these considerations and extra steps are warranted.

If the minor children have the family home or other real property, held for them in Trust, the trustee managing the property generally must petition a court to sell it, even if he or she plans to purchase a new home for the children with the proceeds. Again, these are special steps designed to protect the assets for the minor children. The court does not have to allow the sale. The children will automatically receive the property when they reach their eighteenth (18th) birthday, or other age of majority. This may be a real disadvantage if maturity or liability of an 18 year old is a concern. When minor children are involved it is advantageous to consider a Living Trust with Minor's provisions.

Creating a trust allows you to grant broad powers to the trustee as well as flexibility to buy, sell, or trade the assets as needed, and to manage them. Decisions must be made by the trustee that are in the best interests of the child(ren). If a Living Trust has been prepared changes can be made often without a trustee having to go to court for approval. You can also name a preferred guardian for your children and a preferred trustee for your children's assets. You can also choose to continue the trust until the child reaches a statutory age, usually twenty-one (21) or older, rather than distributing the property at age 18.

For information about making a Trust for your minor children, please contact the Firm by email or by calling 405-605-3704.