What is a Legal Trust?
A trust is a legal document that allows assets to be held in trust for the benefit of a trustor (also known as a grantor or settlor), the person creating the trust. When the trustor dies, a successor trustee takes over the management of the trust, ensuring that the assets are distributed in the manner intended by the trustor rather than according to the rules governing probate and intestate succession. Trusts can be an effective way to manage and protect assets while also providing for the needs of beneficiaries.
It would be best to speak with an estate planning attorney to review the options available when establishing a legal trust.
- Asset protection trust- Asset protection trusts (APT) are typically used to protect an estate from creditors and lawsuits. This trust is usually established for high-net-worth individuals or high-risk occupations like doctors or real estate. Asset protection trusts can also be used in place of a prenuptial agreement.
- Charitable trust- When a donor gives away ownership of their assets like cash, securities, or other valuables to a charity, it is referred to as a charitable trust. Alternatively, the donor may create a charitable foundation to manage and distribute these assets to various charitable causes.
- Irrevocable trust- An irrevocable trust is designed to transfer assets from the grantor’s control and ownership to that of the beneficiary. The primary goal of the trust is to reduce the value of the grantor’s estate concerning estate taxes and safeguard the assets from potential creditors. Irrevocable trusts cannot be changed once they are created. To understand the implications of placing assets in an irrevocable trust, it is best to consult with an experienced estate planning attorney.
- Revocable (living or inter vivos) trust- A revocable trust can be helpful for people who want to plan for the distribution of their assets after they pass away. It’s called “revocable” because the person who creates the trust (also known as the “grantor”) can change the terms of the trust at any time. This gives the grantor flexibility to adjust the trust as their circumstances change.
- Special needs trust- A special needs trust protects a mentally disabled beneficiary from losing eligibility for government benefits. Different types of special needs trusts may or may not be considered as a separate entity for tax purposes at the federal level.
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The creation of a trust affords trustors several benefits over a will, including:
- Probate avoidance- the trustee distributes assets in a trust under the terms established when the trust was created. Probate is not required if assets are in a trust, and intestate succession does not apply.
- Loss protection- Trusts can also protect assets from divorce, creditors, and taxes and have provisions to ensure the responsible use by beneficiaries with disabilities or addictive behaviors.
- Enhanced control over estate distribution- Trusts allow trustors to name specific beneficiaries of specific assets—including contractual assets—and outline provisions or conditions under which those assets can be released.
At Roybal-Mack & Cordova, our estate planning attorneys can walk you through each type of trust and what will work best for your unique situation. Reach out to us today to start planning.
