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These trustees hold on to the assets for the beneficiaries of the trust. The rules of a trust depend on the terms on which it was built.
In some areas, it is possible for older beneficiaries to become trustees. For example, in some jurisdictions, the grantor can be a lifetime beneficiary and a trustee at the same time. A trust helps avoid taxes and probate. It can protect assets from creditors, and it can dictate the terms of an inheritance for beneficiaries.
The disadvantages of trusts are that they require time and money to create, and they cannot be easily revoked. A trust is one way to provide for a beneficiary who is underage or has a mental disability that may impair his ability to manage finances. Once the beneficiary is deemed capable of managing his assets, he will receive possession of the trust. Although there are many different types of trusts, each fits into one or more of the following categories:.
A living trust — also called an inter-vivos trust — is a written document in which an individual's assets are provided as a trust for the individual's use and benefit during his lifetime. These assets are transferred to his beneficiaries at the time of the individual's death.
The individual has a successor trustee who is in charge of transferring the assets. A testamentary trust , also called a will trust, specifies how the assets of an individual are designated after the individual's death. A revocable trust can be changed or terminated by the trustor during his lifetime. An irrevocable trust , as the name implies, is one the trustor cannot change once it's established, or one that becomes irrevocable upon his death.
Living trusts can be revocable or irrevocable. Testamentary trusts can only be irrevocable. An irrevocable trust is usually more desirable. The fact that it is unalterable, containing assets that have been permanently moved out of the trustor's possession, is what allows estate taxes to be minimized or avoided altogether.
A funded trust has assets put into it by the trustor during his lifetime. An unfunded trust consists only of the trust agreement with no funding. A living trust is one that the grantor—the individual who creates and funds the trust—sets up during their lifetime. These are also sometimes called "inter vivos" trusts, and they're different from testamentary trusts which are created under the terms of an individual's will after death.
A revocable living trust can be changed at any time. You can modify it with a trust amendment if you have second thoughts about a provision in the trust's terms, such as if you change your mind about who should be a beneficiary. You can even revoke or undo the entire trust if you decide that it just doesn't serve your purposes any longer. It's common for the grantor of a revocable trust to personally act as trustee, managing its assets, after the trust is formed and funded.
The downside is that all assets transferred to the trust are still considered your own personal property because you continue to have absolute control over them. A revocable trust offers no protection if you're sued—your assets are at risk just as if you still owned them in your own name. A revocable trust allows you to plan for mental disability. Assets held in the name of the trust can be managed by a successor trustee when and if the grantor becomes mentally incapacitated.
The grantor can name the trustee, someone they trust to take over in the event that they can no longer personally manage the trust themselves. Revocable trusts also avoid probate of the assets they hold. Although they're still taxable for estate tax purposes, they'll pass directly to the beneficiaries named in your trust agreement without probate court involvement.
A revocable trust can protect the privacy of your property and beneficiaries when you die as well. Because it's not subject to probate, your trust agreement remains a private document.
It doesn't become a public record for all the world to see. Your assets and who you've decided to leave your estate to will remain a private family matter. Contrast this with a last will and testament that has to be admitted for probate.
It becomes a public record that anyone can see and read as soon as it's submitted to the court. An irrevocable trust can't be changed by the grantor after the agreement has been signed and the trust has been formed and funded.
For the most part, it's forever, although there are a few rare exceptions. You can't take property back that you've placed into an irrevocable trust. You can't act as trustee and manage the trust's assets. Your Practice. Popular Courses. Part Of. Estate-Planning Basics. Wills vs. Types of Trusts.
Estate-Planning Strategies. Your Legal Team. Advice for Heirs. Table of Contents Expand. Will vs. Trust: An Overview. What Is a Will? What Is a Trust? Key Takeaways Whether you choose a will or a trust, you should seek the advice of professional advisors tax, investment, and legal.
Trusts offer more control of assets, but they are more expensive, can be tedious to set up, and must be actively managed.
This means making such a plan a priority now can save money and precious time later. Article Sources. A combination of firms or corporations for the purpose of reducing competition and controlling prices throughout a business or industry. Trusts are generally prohibited or restricted by antitrust legislation. Compare monopoly. Cactus aficionados, don't get left in the dust with this quiz on desert plants. Find out if you have the knowledge to survive this prickly foray into the desert!
This tall, horizontally branched cactus is probably the most recognizable cactus in Arizona. What is it called? Idioms for trust in trust , in the position of being left in the care or guardianship of another: She left money to her uncle to keep in trust for her children.Jun 11, · A trust is an agreement between two parties: a settlor and a trustee. Although trusts may be used for many other purposes, for our discussion here .