Most people think of an estate plan as simply planning for the distribution of your assets after you pass through the creation of a will. A well drafted plan consists of more than a will and should also include an advance medical directive, power of attorney and in some situations, a trust. The goal is to have a plan that is usable, flexible, and meets your needs for a long time to come. Together, these documents allow you to safeguard your goals, protect your values, and avoid or delay guardianship.

What is a trust based plan?

The trust based plan contains the same set of documents as the will based plan plus a trust document, which carries out most of one’s estate planning objectives. Thus, the role of the will is reduced to what is often referred to as a “pour-over will,” and functions as a safety net. The pour-over will catches any assets not already in your trust and pours them over to the trust upon your death. The assets contained in the trust will not pass through probate, which makes the process much easier for your personal representative.

What is a trust?

A trust is a legal relationship among wherein (1) a grantor writes a declaration of trust (2) in which he or she transfers legal ownership of property to a trustee (3) for the benefit of one or more beneficiaries. Thus, the grantor is the person creating and funding the trust, the trustee is the person or entity taking fiduciary responsibility for that property, and the beneficiary is the person or entity receiving the benefit of that property. The trust will only exist when the trustee accepts receipt of the property.

What is the trust in the trust based plan?

A trust in the trust based plan is often called a revocable living trust. It is a flexible living document that becomes active upon its execution, whereas a will becomes active when the testator passes away. The trust in the trust-based plan is different from testamentary trusts because it is created while you are alive rather than upon your death. In a trust based plan, while alive, very often the original grantor is also the trustee and the beneficiary.

How do I fund my trust?

How the trust is funded depends on what it is that is transferred to the trust. For instance, real property must be re-deeded in the name of the trust, bank accounts need to be re-titled in the name of the trust, and personal property needs to be assigned to the trust. A trust can also be named as a beneficiary on life insurance policies and retirement accounts.

What happens when the grantor dies?

When the last grantor passes, their will is submitted to probate and their estate is administered by a personal representative. The probate process is much less complicated because their trust is doing the heavy lifting and does not pass through probate. The trust becomes irrevocable and is administered by the successor trustee, named in the trust, per the instructions in the trust.

Regarding the trust, there is frequently an interim step if the grantor was married. Often married couples execute a joint revocable living trust, wherein they are both named as co-grantors, co-trustees, and beneficiaries. After the first grantor dies, the assets in that joint revocable trust usually flow into either a bypass trust or a marital trust. The bypass trust holds assets up to the amount of the permissible estate tax exemption amount and anything over that amount is held by the marital trust. The bypass trust is irrevocable. Although there are some limitations on what the surviving spouses can do with the bypass trust, he or she can still benefit from that trust. The marital trust is revocable and the surviving spouse has complete control over that trust.

How long does a trust last?

A trust may terminate, for example, when the purpose it serves is complete, the last beneficiary passes, or the trust property becomes such a small amount that it no longer makes fiscal sense to continue to administer the trust. A trust can last across generations.

What are the benefits of a trust?

There are many benefits to a trust, including serving as a credit shelter, providing tax benefits, facilitating the transfer of assets to a minor, assisting in providing for incapacitated persons, and helping preserve goals, values, and even avoiding or delaying guardianship.

Remember

Whatever planning documents you have, safeguard the originals and share your intentions with those that need to know. Unlike wills, the register of wills does not act as a repository to store trusts. Trusts should be held in a secure place; the parties to the trust should know its location and your intentions. Otherwise, you are inviting discord and potentially trust interpretation litigation in the circuit court.