Trusts are a valuable estate planning tool to include in an estate plan. For that reason, all estate planners should be familiar with the basics of trusts and how a trust may be able to help ensure their wishes for their estate are fulfilled if they decide to include one as part of their estate plan.
Trust basics
A trust is created when the property owner transfers legal ownership of property to a trustee to manage for the benefit of the named trustees. A trust is managed by a trustee who has fiduciary obligations to the beneficiaries of the trust.
There are two categories of trusts including testamentary trusts and living trusts. A testamentary trust transfers property into the trust following the death of the person who created the trust or the estate planner. A living trust, on the other hand, is set up during the lifetime of the person creating the trust. A living trust can be set up so that it continues after the death of the person who set it up.
Living trusts can fall into two types including revocable and irrevocable. A living trust can be revocable or irrevocable. Depending on the circumstances, a trust may be used avoid probate in some situations. If all of the assets subject to the probate process are transferred into the trust prior to the estate planner’s death, for instance, those assets may avoid the need to go through the probate process.
Trusts can be used effectively as an estate planning tool to help estate planners protect their assets and transfer them as well. Because of the important role trusts play in an estate plan, it is helpful for estate planners to know how they work and that they are aware of the basics of a trust.
