Trusts become part of many people’s estate plans, but before you start planning you may not know how trusts work. A trust begins with a legal document setting forth a relationship among the person forming the trust, the people who will receive the benefit of assets put in trust, and the person who administers the trust.
The person who forms a trust, called the settlor, makes all the decisions about which assets to put in trust, who should receive the benefits, and who should administer the trust. In the written trust document, the settlor specifies one or more beneficiaries who will receive benefits from the trust and a trustee who will administer the trust. The trust document also describes when and how beneficiaries receive benefit through distributions of money from the trust assets.
The settlor can place assets into the trust by transferring them into the trustee’s name. The trustee only holds legal title to the property because he is trustee. He or she cannot use the property for personal benefit. Rather, the beneficiaries retain the beneficial interest in all property placed in trust. Trusts separate the legal ownership of assets from the beneficial interest in them by giving the trustee administrative control of the assets only.
Trusts come in handy for all sorts of practical and estate planning uses. One typical use of a trust involves supporting children or relatives. The settlor’s death typically does not affect day-to-day trust administration, so the trustee can carry on making distributions to the children after the settlor’s death. Since the trustee manages and invests the trust assets, the settlor need not worry about the children’s ability to manage money. The settlor even can specify a distribution schedule or one or more triggering events – such as a child turning 21.
Trusts act as extremely flexible estate planning tools for a variety of needs. Some settlors create trusts and place assets in trust during their lifetimes. Other settlors create trusts that go into effect upon their deaths, for the benefit of surviving relatives. The trust document explains when the trust goes into effect and when it ends.
Some people may receive tax advantages from having a trust. Some may simplify administration of their estate by having a trust, which is an asset not subject to probate. Consult a knowledgeable estate planning attorney to determine if setting up a trust will benefit you.
Curious about starting a trust? Angela Klenk, Esq. and the team at Beach Cities Estate Law couple personalized attention to your estate plan with big law firm experience for a winning combination to give you peace of mind. To schedule a case evaluation, visit Beach Cities Estate Law online or call (424) 400-2125.