A trust holds property for the benefit of your benefit or that of your loved ones or beneficiaries (the people entitled to the property upon death). A trustee is named to manage the property on the behalf of your loved one.
Two main types of trusts –
A Testamentary Trust is created by will and takes effect only upon death.
A Living Trust is established to manage the assets of the trust’s creator during and after his or her lifetime. A living trust can be either: 1) revocable – changed or terminated at any time; or 2) irrevocable – generally permanent, terms are not changed absent compelling reasons and then only after court approval.
Advantages to Setting Up a Living Trust
- Unlike a will, which is public record, a living trust is confidential
- If your loved one become incapacitated, a living trust is more comprehensive than a durable power of attorney
- Your loved one can give a known trustee specific investment instructions
- A living trust may help lower death taxes
- A living trust typically avoids probate, which can be time-consuming and expensive
Items to Place in a Trust
- Bank Accounts
- Stocks and Bonds
- Certificates of Deposit
- Retirement Benefits
- Investment Income
- Real Estate
- Personal Property (e.g., jewelry, artwork)
Trust Funding
To avoid probate and ensure assets pass to the designated beneficiary, assets must be placed in the trust using trust funding – the process of getting assets into a trust either by re-titling the asset, changing designation of beneficiary, adding payable on death (POD) or transfer on death (TOD) to a stock or bond account. Trust funding begins after the trust agreement is signed. Some attorneys will assist with this funding and others will not so be sure to determine responsibility for this very important task so that it is not overlooked.
Signing the trust agreement is not enough, trust funding must also be completed.