Originally, trusts were used almost exclusively by wealthy families to protect that wealth and pass it down to future generations. As trusts evolved, however, they became more “user-friendly.” Today, there is a specialized trust to meet almost any estate planning goal which is why trusts are so frequently found in the average estate plan. If you are considering the addition of a trust to your estate plan, it helps to learn all you can about how a trust might fit into your overall plan. Toward that end, a Carmel revocable trust attorney at Frank & Kraft explains the top three uses for a revocable trust.
Understanding Trusts
At its most basic, a trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor (also referred to as a Maker or Grantor), who transfers property to a Trustee. The Trustee holds that property for the beneficiaries designated by the Settlor in the trust agreement.
All trusts are first divided into one of two categories – testamentary or inter vivos – the latter of which is more commonly referred to as a living trust. A testamentary trust is a trust that arises upon the death of the Settlor and which is typically activated by a provision in the Settlor’s Will. A living trust is a trust that takes effect as soon as all the legalities of creation are in place.
Living trusts are further divided into revocable and irrevocable trusts. As the name implies, a revocable living trust is one that can be modified or revoked by the Settlor at any time and without the need to provide a reason. An irrevocable living trust, once it takes effect, cannot be modified or revoked by the Settlor for any reason. Testamentary trusts are all revocable because they do not go into effect until the death of the Settlor. Because a testamentary trust is triggered by a Will, and a Will can always be changed prior to the death of the Testator/Settlor, a testamentary trust is revocable.
Popular Uses for a Revocable Living Trust
A revocable trust can be used to help further numerous different estate planning goals; however, three of the most popular uses for a revocable living trust include:
- Avoiding probate – at the time of your death, the assets you own will make up the estate that you leave behind. Probate is the legal process that is usually required before those assets can be distributed to beneficiaries. Probate can be a time consuming and expensive process which is why people often include probate avoidance as one of their estate planning goals. One way to significantly decrease your estate’s exposure to the probate process is to use a revocable living trust. Assets that you gift in your Last Will and Testament must first go through probate before they can be distributed. Assets held in a trust, however, bypass the probate process and can, therefore, be distributed to the intended beneficiaries shortly after your death making a revocable living trust a popular probate avoidance tool.
- Incapacity planning – a comprehensive estate plan should plan for the possibility of your incapacity as well as the eventuality of your death. If you do become incapacitated at any point in time, someone will have to take over control of your assets and finances. A revocable living trust serves as an excellent incapacity planning tool by allowing you to appoint yourself as the Trustee and appoint the person you want to take over control of your estate as your Successor Trustee. Assets are transferred into the trust and you continue to manage them as long as you are able. If you become incapacitated, the Successor Trustee takes over control of the trust assets without the need for any additional steps.
- Protecting the inheritance of a minor child – a minor child cannot inherit directly from a parent’s estate. To resolve this dilemma, many parents choose to create a testamentary trust. Using a testamentary trust makes sense because the trust won’t be needed unless the parent dies. If it is needed, the Trustee manages the trust assets which are used to provide for the child until the child reaches adulthood, at which time he/she is entitled to the remaining trust assets.
Contact a Carmel Revocable Trust Attorney
For more information, please download our FREE estate planning worksheet. If you have questions about how to use a revocable trust in your estate plan, contact an experienced Carmel revocable trust attorney at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
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