First off, what is a trust?
The simplest definition I can offer is that it is an agreement involving three parties – you, a trustee, and a beneficiary – where property is given by you to a trustee to manage on behalf of one or more beneficiaries. The agreement will have its own set of instructions for the trustee that direct the trustee how to manage the property and when to give property or income to the beneficiary. By law the trust must have an ending event – a future time when the property of the trust is distributed to the remaining beneficiaries. Until then, which can be one hundred years or more, the property is held under the control of the trustee who manages it according to your original wishes.
A few other basics: a trust can be created during your lifetime, in which case it’s called a “living” trust, or it can be created through your will, in which case it’s called a “testamentary” trust. In addition, a trust may be “revocable” meaning that you may change or revoke the trust during your lifetime; or the trust may be “irrevocable” which means that no one has the power to alter the terms of the trust once it’s written. A revocable trust will usually become irrevocable at your death, just like your will.
So, the first reason you might need a trust is:
You’re concerned about the expense and delay of probate. Probate is the legal proceeding involved in settling your affairs when you die. It can be expensive, and it can be time consuming, depending on the complexity of the estate and where you live. In this case a Revocable Living Trust that holds title to your assets may be an appropriate alternative to a traditional will. Under this arrangement, you can be the trustee and beneficiary of the trust during your life; therefore you stay in complete control of your assets. At death, no title changes are required since the trust already owns the assets, so no probate proceeding is necessary. A successor trustee, normally a corporate trustee or family member, carries on the trust and disburses the assets according to your written instructions….
(Next reason to be posted soon!)
Photo Credit: foilman