This post continues with the theme of sharing questions frequently asked by clients:
Dear Curtin Law Office,
What is a trust? Do I need one?
Sincerely,
Curious Client
Dear Curious Client,
Many people would benefit from a trust because the probate process can be time consuming and expensive, which is why many people try to avoid it and establish trust. A properly funded trust avoids the court/probate. A trust can make the distributions to your beneficiaries much simpler when you pass away.
Unlike a will, it is also a private document and the only persons privy to the contents of your trust after your death, are the beneficiaries. Sometimes a trust can be difficult to conceptualize, but I often equate a trust to a bucket that you create and design during your life.
However, for the trust bucket to be effective and avoid probate when you pass, you also need to transfer assets into the bucket during your life. This is very important because if there is nothing in the bucket when you pass, then there is nothing for your Trustee to distribute. You can transfer real estate, bank accounts, and investments into a trust. As part of the design, you name who you want to administer the assets when you cannot, or when you die. The person who manages the trust assets is called the Trustee. You also designate beneficiaries of the bucket when you pass.
There are 2 types of trusts, revocable and irrevocable. A revocable trust is considered to be your asset and typically, you would be the Trustee during your lifetime. As the owner and Trustee of the trust bucket, you can put assets into the bucket and you can take assets out of the bucket. You can also change the design of your bucket at any time. A revocable trust generally only becomes irrevocable upon your death.
An irrevocable trust is designed so that after a certain period of time, it will not be treated as your asset. You cannot be the Trustee of an irrevocable trust and you lose control over the assets that you put into the trust. Furthermore, unlike a revocable trust, once you design an irrevocable trust, you generally cannot change it.
In addition, once the asset is transferred into the irrevocable trust bucket, you cannot withdraw it. People typically establish irrevocable trusts to protect assets from nursing home costs or to avoid estate taxes. Special Needs Trusts are also often irrevocable. Before establishing an irrevocable trust, it is very important to meet with an estate planning attorney to discuss.