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A trust agreement is a document that spells out the rules that you want followed for property held in trust for your beneficiaries.

Common objectives of trusts:

  • Protect property in your estate
  • Reduce estate-tax liability
  • Avoid probate

Why Are Trusts So Effective?

The benefit of creating a trust is that your beneficiaries will avoid the probate process. Simply put, “probate” is the legal process that occurs after you pass away, and often involves a court review of estate planning documents. A probate court will look at the validity of your will, have your property appraised, and ensure all debts are paid. A trust is not subject to the probate process.

Additional benefits of a trust:

  • Control of your wealth. You can specify the terms of a trust precisely, controlling when and to whom distributions may be made.
  • Protection of your legacy. A well constructed trust can help protect your estate from heirs’ creditors or from beneficiaries who may not be adept at money management.
  • Protection of your privacy. Probate is a matter of public record; a trust may allow assets’ disbursements to pass outside of probate and remain private.

How Do Trusts Work?

To create a trust, you would first transfer ownership of some of your property to the trust. When doing so, name yourself (and your spouse, if applicable) as trustees. This means that you’ll retain control of the property. Next, name the beneficiaries you want to receive this property after your death. Appoint a competent and responsible “successor trustee” to handle the distribution of property.

There are many types of trusts; most common are Revocable and Irrevocable.

  • Revocable trust: Also known as a “living trust”, a revocable trust can help assets pass outside of probate, yet allows you to retain control of the assets during your (the grantor’s) lifetime. A revocable living trust doesn’t protect property from creditors, but an irrevocable trust does.
  • Irrevocable trust: An irrevocable trust typically transfers your assets out of your (the grantor’s) estate and potentially out of the reach of estate taxes and probate, but cannot be altered by the grantor after it has been executed. An irrevocable trust is generally preferred over a revocable trust if your primary goal is to reduce the amount subject to estate taxes by effectively removing the trust assets from your estate.

An Example

A husband and wife establish a joint revocable living trust. While the trustor serves as a trustee or a co-trustee, a separate tax return is not required for the trust. The revocable living trust allows the trustee to buy, sell and finance assets just as before. In the event of incapacitation, management of the living trust passes to the successor trustee without the necessity of a court-appointed conservator. The living trust can be cancelled or changed at any time before death or incapacitation.

Deciding on a Trust

State laws vary significantly in the area of trusts and should be considered before making any decisions about a trust. Choosing and creating a trust can be a complex process; the guidance of a knowledgeable document specialist is recommended.

Please call Premier Documents at (602) 371-8898 to discuss your needs further.

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