Family Trust Also Called Revocable Trust or Living Trust
The Family Trust has become a common part of many Estate Plans. In fact, most attorneys believe it malpractice to create an Estate Plan without considering whether a Trust is appropriate. A Trust does much more than a Will.
No Probate Court: One major advantage of a Trust over a Will is the ability to avoid the expense, loss of privacy, frustration and delays of probate court. Instead of going to probate court, the Trustee you choose has full control over the property and is required to follow your distribution instructions.
Distributions: A Trust gives you the ability to give detailed instructions concerning when, how and to whom distributions are to be given.
• Immediate Distributions: Perhaps one of the most attractive features is the ability to have property distributed immediately and without the need for probate court supervision.
• Delay Distributions: A Trust can delay distributions of assets until an heir reaches a financially mature age.
• Special Needs Dependents: You can choose a Trustee to manage the assets and pay bills for somebody with special needs.
• Spendthrift Provisions: You can prevent individuals who are irresponsible or have substance abuse problems from squandering their inheritance by placing a Trustee in charge of the assets.
• Income distributions: You can instruct the Trustee to pay income to designated persons or organizations.
Flexibility: Revocable Trusts can be amended if your needs or the needs of your beneficiaries change. For example, if one of your heirs has a misfortune which makes them more financially vulnerable than others, the Trust can be modified to provide from him or her.
Your Choice of Trustee: You decide who serves as Trustee. Initially, you will serve as the Trustee. Married couples usually elect to have each of them act as co-Trustees then the survivor serves. The successor Trustee can be a person or a Trust Company or Trust Department of a Bank.
Disinheritance: In a Trust, as in a Will, heirs can be disinherited or given property in unequal shares. Generally speaking, spouses cannot be disinherited unless a prenuptial agreement is in place.
Continuity of Management: The person (or married couple) creating a Trust usually choose themselves to be the Trustee(s) until their death or incapacity. Then a successor Trustee that you name takes over. This inures that there is no interruption in authority to pay bills, manage property and conduct business. Without a Trust there is nobody in charge until they are appointed by the probate court.
Privacy: The contents of a Trust are generally free from public examination. Therefore, the distribution plan and the nature of the assets are kept private. In contrast, a Will must be filed in a public record, and the executor will usually be required to file an inventory and appraisals.
No separate tax return: No separate tax return or employer identification number is required while you are the Trustee. See end note.
No government involvement: Trusts created for an Estate Plan require no governmental oversight. There is no agency that regulates Trusts. The terms of a Trust are contained in a private document with very limited requirements for disclosure of its contents.
Your Property is still Yours: Having a Trust does not limit your control. You may sell, give away, rent, lease or dispose of anything you own just as you do now.
Funding Requirement: In order for a Trust to work your property must be held in the name of the Trust. This usually means that real property must be re titled, bank accounts renamed, etc. If property is not put in the Trust it will pass through the Will. That is why care should be taken to insure that all property is placed in the Trust. You might think of this as doing the work in advance so a probate court doesn’t have to.
Myths about Trusts:
Trusts are for the very wealthy: Untrue: Trusts can be for anyone with assets or beneficiaries that need to be protected. There is no minimum estate value that is needed to create a Trust.
Trusts are complex: False: Trusts most are simple. The client continues to use the property just as before.
Trusts can be done without an attorney: True: However, many attorneys hire other attorneys to prepare their Trusts and Estate Plans. This is because attorneys recognize that devastating mistakes can occur if a Trust is not drafted or funded correctly.
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End Note: Upon your death tax returns are required for estates and for Trusts.