A trust is an arrangement which dictates how your assets are to be managed and distributed. Trusts are typically established to save taxes, avoid probate, control trust assets, and protect Beneficiaries. Trusts can be written so that they can be either permanent (irrevocable) or changeable (revocable). There are three parties to a trust: the Grantor, the person who creates the trust by signing a trust agreement and transferring assets to the trust to be managed by the Trustee, the person or trust company, who holds title to the property for the benefit of the Beneficiaries, or the individuals for whose benefit the trust is created.
If the purpose of creating a Trust is to avoid probate and provide for the possible loss of capacity, then the Trust is typically written as revocable or changeable. In a revocable Trust, the Grantor retains the right to change the terms of the Trust or terminate it at any time until death. If the purpose of the Trust is to obtain either present or future tax benefits, then the Trust is typically irrevocable. The Grantor gives up all rights to the property placed in the Trust and would generally be unable to modify or revoke the terms of the Trust.
A trust can be established when one is living (Living Trust) or it can be automatically created upon the time of death (Testamentary Trust). The Living Trust or “inter-vivos” trust is established during a person’s lifetime for the benefit of that person or of other beneficiaries. A testamentary Trust is established under a Will and becomes effective upon death, in which case the will and Testamentary Trust would be subject to probate.
To determine if you should create a trust, consult with your tax advisor or attorney, as each person’s circumstances differ. A qualified advisor can draft your trust agreement tailored to fit your specific needs.
In many cases, trusts help save taxes, help retain control over trust assets, and protect beneficiaries.
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