What is a Trust & how does a Trust Keep You Out of ProbatE?

The "legalese" way to define a trust is that a trust is a fiduciary relationship in which a trustor gives another party, known as the trustee, the right to hold title to property or assets for the benefit of a third party.

How does this work in the real world? By including a trust in your Estate Plan, your family's assets will pass to the beneficiaries you name in your trust and avoid the probate process. In a typical revocable trust, you, the client (let's assume you are spouses), will be named as both the "Trustors" of the Trust as well as named as "Trustees" as well as the "Beneficiaries". You must then fund your trust by transferring title of all your property into the trust. At this point, you no longer own the property, because now it is owned by the trust, and you, as trustee, will determine how the trust will use the assets of the trust on behalf of the beneficiaries. Notice that nothing will change as to how you live your life, because you and your family have also been named the beneficiaries, and you will still be able to use and enjoy all the assets just as you did before you created the trust. Notice also that we have called this a revocable trust. That means you can undo it at any time before either of the Trustors die, so if a couple made a trust and later decided to divorce, the trust could be unwound and the assets returned to each spouse.

Your trust will be drafted to name a successor trustee when the first spouse dies. At that moment, the new successor trustee immediately takes control of the trust. There is no need to go to probate court and ask a judge to determine who owns your property and how it will be distributed to the heirs, because you don’t own any property, now the trust owns the property. This is why it is critically important to fund your trust while you are still alive. Plus, the probate court isn’t needed to decide who your beneficiaries are, because the terms of your Trust has already determined who will be the beneficiaries, and how they will inherit or enjoy the assets of the Trust Estate. You have just avoided the long and expensive hassle of probate!

Also, when the first spouse passes, the revocable trust will become irrevocable. This isn’t a bad thing. 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. Your trust can also be designed to give the surviving spouse options that allow him or her to move assets out of the surviving spouse's estate to avoid estate taxes. Also, almost all revocable trusts provide that upon the first death, the surviving spouse would still have all his or her own separate property in his or her own revocable trust (which he or she can pass to anyone he or she chooses). The surviving spouse would also have the lifetime use of any property of the deceased spouse which might be held in trust for the remainder beneficiaries (think "children"). On the second spouse passing, depending on which type of trust you design with us, your remainder beneficiaries will either be entitled to own the assets outright, or, if you decide to create, say, a Lifetime Asset Protection Trust, your immediate beneficiaries would enjoy the use of some of the assets during their lives, while the remaining assets might continue to be held in the trust for future generations.

This is an example of only one type of trust. There are many different types of trusts that are designed for every family's specific situation, whether you are concerned about blended families with children from a previous marriage, multiple homes and capital gains issues, estate taxes, or your desires to make charitable use of your assets. The many types of trusts fall into six broad categories—living or testamentary, funded or unfunded, revocable, or irrevocable. Please visit our blog to learn more about the different types of trusts that can protect your family's legacy.

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