People often hear about very wealthy people using trusts for one purpose or another. And indeed, many rich and famous folks use them. But trusts are not restricted to the very wealthy. In fact, anyone can potentially benefit from using them.
Trusts may sound like the purview of the rich and famous but there is really no mystery here. A trust is a legal construct by which property or assets are held by a third party, such as a bank or trust company, for the benefit of one or more other persons.
Here is the important key to understand: Property placed into the trust is owned by the trust itself, not the person who put the property into the trust. Property in the trust is dispersed using the rules incorporated in the trust document. Because of this, there are many benefits of having a trust
Revocable Versus Irrevocable Trusts
Before discussing some of the more common types of trusts, it is important first to cover their two basic forms. These are revocable trusts as contrasted with irrevocable trusts.
The distinction between the two is simple. A revocable trust can be changed and amended after it is created. On the other hand, an irrevocable trust cannot be changed after it is set up; it can only be accessed after the grantor’s death.
Types of Trusts
Moving beyond the revocable versus irrevocable distinction, there are many types of trust that are used for a wide variety of purposes. Some are created to reduce income taxes, avoid estate taxes, and protect assets from one generation to another. Others are used to facilitate charitable donations.
One of the most common reasons for having a trust is to manage and control spending so that the beneficiaries, often younger children and grandchildren, are insulated from poor financial judgment.
Here are a few of the most popular types of trusts:
- Living Trust. These are used to protect assets and direct their allocation after the trust owner’s passing. They are more comprehensive than a simple will and testament.
- Charitable and Remainder Trust. These are created, as described by the IRS Code section 4947, to benefit both the owner and the owner’s selected charitable organizations.
- Asset-Protection Trust. This specialized irrevocable type of trust is created to shield a person’s domestic or foreign assets from creditors’ claims.
- Settlement Protection Trust. These trusts are created to
provide for the health, education, maintenance, and support of the beneficiary, especially if they have special needs.
Why You Need a Lawyer To Construct a Trust
Trusts are precise and technical legally binding documents. Because of this, they are not for the do-it-yourself or mail-order crowd. Each trust is unique and the details contained can be quite complex and very specific.
It is imperative to work with an attorney competent in trust creation and maintenance in order to establish a vehicle that is not flawed in any way. Partnering with a board-certified estate planning lawyer is one of the best ways to go.
A lawyer is necessary to construct a trust because they have the legal expertise and knowledge to ensure that the trust is properly formed, validly executed, and in compliance with applicable laws and regulations. A lawyer can also provide advice on selecting the appropriate type of trust, drafting the trust agreement to meet the specific needs of the trust creator and beneficiaries, and ensuring that the trust is properly funded. By hiring a lawyer to construct a trust, individuals can help ensure that their assets are protected and their wishes are carried out as intended.