When you think about estate planning do you immediately think about creating a Last Will and Testament? If so, you are not alone. Most people consider a Will to be the primary, or even the only, estate planning document they need when creating an estate plan. Often, however, a Will is either insufficient to accomplish all of your estate planning needs or is not the ideal tool to accomplish your estate planning goals. When either is the case, it may be time to consider establishing a trust instead. Creating a trust requires you to make a number of decisions, starting with deciding which type of trust you plan to create — revocable or irrevocable. Your Missouri estate planning attorney is the best source to help you decide which type of trust works best within your overall estate plan; however, it may also be beneficial to learn more about the difference between the two and the advantages and disadvantages of each.
What Is a Trust?
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also referred to as a “Maker,” who transfers property to a Trustee. The trustee holds that property for the beneficiaries named in the trust. A beneficiary can be a person, and organization such as a church or school, or even the family pet.
Testamentary vs. Living Trusts
All trust are first divided into either a testamentary or a living (inter vivos) trust. A testamentary trust is a trust that does not take effect until the death of the Settlor. A living trust is one that becomes effective during the lifetime of the Settlor once all the elements of creation are satisfied and the trust is sufficiently funded. By their very nature, a testamentary trust is always a revocable trust because it does not even take effect until the death of the Settlor. A living trust, on the other hand, can be either revocable or irrevocable.
A revocable trust can be modified or revoked at any time, and for any reason, by the Settlor of the trust. That means that after your trust is active you can add or remove a beneficiary, amend or delete any of the trust terms, or revoke the entire trust if you choose to do so for any reason.
A revocable testamentary trust is often used by the parents of a minor child as a way to protect assets intended for the child. Because a minor cannot inherit directly, assets intended for the child cannot be gifted in a Last Will and Testament. Instead, a testamentary trust is often used as a mechanism by which the assets can be protected until the child reaches the age of majority.
Incapacity planning is another common use of a revocable living trust. The way it works is as follows:
You, as the Settlor, create a revocable living trust and name yourself as the Trustee of the trust and name the person you want to have control over your assets in the event of your incapacity as the Successor Trustee. You then transfer all major assets into the trust. AS the Trustee, you can continue to manage and control all trust assets as well as add or remove assets. If you become incapacitated at some point down the road your Successor Trustee will take over as the Trustee automatically, providing him/her with immediate control over the trust assets without the need to petition a court.
Irrevocable Living Trusts
One of the major differences between an irrevocable and a revocable trust is found in the way the law views assets transferred into the trusts. Because you retain the ability to withdraw assets from a revocable living trust the law considers those assets to still be available to you and within the reach of creditors. Assets transferred into an irrevocable living trust, however, become the property of the trust once the transfer is complete. Therefore, they are out of the reach of creditors which is why irrevocable living trusts are often used for asset protection purposes. The same reasoning applies to Medicaid trusts, which are also irrevocable living trusts.
If you have additional questions or concerns about which type of trust is best for your estate planning needs, contact the experienced Missouri estate planning attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.
Creating a trust
- How Will You Age in Place and Be Able to Die at Home? - August 16, 2020
- Beneficiary Designations and Other Non-Probate Transfers - August 15, 2020
- Leaving Assets Can Be Tricky – Part 3 - August 13, 2020