Did you know that trusts can be useful tools in many estate plans, even the plans for people with moderate wealth? Trusts can prevent probate, which can be costly and time consuming, and some trust can protect assets from creditors and taxation. Having a basic understanding of trusts can help you understand why your attorney may recommend one type of trust over another.
A trust is created through a legal document, usually called a trust agreement The agreement involves the grantor, the trustee, and the beneficiary. Each of these parties can have one or more persons, and the same individual can be in more than one party. The grantor is the person who creates the trust. Also known as the settlor, or the creator, the property or cash that is placed into the trust comes from this person or these people. The trustee is the person who is in charge of managing the property in the trust. The trustee is a fiduciary role, and must manage the trust solely for the benefit of the beneficiaries, and in compliance with the terms of the trust agreement and with state law. In most states, the property of the trust is titled in the name of the trustee in his or her official capacity, such as “John Doe, Trustee of the Doe Family Trust.”
The beneficiary is the person who benefits from the trust. When there are multiple beneficiaries at the same time, this is often called a “pot” trust because the property is for the benefit of all of the beneficiaries at once. Families with young children often prefer to have one trust for all of their children because it can be hard to anticipate the needs of each individual child when they are young and many of their expenses will benefit the whole group. Families with teenagers often opt for separate trusts for each child, so that one child cannot spend more than his or her fair share. There can also be sequential beneficiaries; the primary or current beneficiary who receives any benefits now, and contingent or alternate beneficiaries who might receive benefits later.
For most people, this basic overview of trusts is sufficient to understand when and why your estate planning attorney is recommending the use of a trust. Do you have more questions or concerns. Our office can guide a family through their estate planning options. Please contact our office today to schedule a meeting with attorney Alan Hougum.