Revocable and Irrevocable Living Trusts
What is a trust and is it right for you?
Introduction to Trusts
Perhaps some of the most discussed legal documents in the past few years are trusts. One of the most common is a "living trust," but there are trusts which serve a variety of purposes. Some trusts may aid in estate or tax planning, others may be for the benefit and care of children, and still others can simply be created to avoid probate. Recall from our section on wills that even when you create a will, in most states, you are going to end up in a court probate proceeding of some type. As we will see here, in many cases, a trust may help you completely avoid the costs and delays inherent in the probate court.
However, once again, this is an area of strict statutory rules and in order to have peace of mind that you have prepared your trust properly, you must understand the applicable rules of your state and how they operate to affect your trust. This is an area which is best left to an attorney, and many of the Plan Attorneys in the Family Legal Access Plan, if you are a member, are specialists in this area, or have special expertise in drafting certain kinds of trusts. The purpose of this detailed discussion is so that you can understand trusts and the operation of the various provisions in certain trusts. With this understanding, you can better communicate your desires and wishes to your attorney so that your trust can be properly prepared.
What is a Trust?
Legally, a trust can be defined as a legal instrument which creates an entity, whose identity is legally separate from that of the creator. Usually a party who creates a trust, the Trustor, transfers title to some or all of his/her property, in trust, to another person, the Trustee, to be held for the benefit of either the Trustor or one or more third parties, known as beneficiaries. This transfer creates a situation in which title is held in more than one manner - legal title is held by the Trustee, and equitable title is held by the Trustor or beneficiary(ies).
Generally stated, a trust is an agreement between the Trustor and Trustee, whereby the Trustee agrees to administer and distribute the property, along with the income from the property, as specified in the trust agreement. Commonly, beneficiaries are specified in a trust agreement and the agreement usually specifies who should receive what assets or proceeds from the trust on the death of the Trustor, or sometime thereafter.
Sometimes the trust will enable the beneficiaries to receive Trust income during the life of the Trustor, and sometimes no property is transferred to the beneficiaries until the Trustor dies. Often the Trustee is instructed in the Trust Agreement to withhold any distribution of trust income or property until each of the beneficiaries reaches a certain age. There are as many differences in trusts as there are trusts, but this overview will help you to visualize the process.