A trust is a contract in which there are three players; the first is the settlor/ grantor/ trustor, who sets up the trust. The key player, however, is the trustee, who is the fiduciary charged with the responsibility of taking care of the beneficiary, who is the third player; the individual to whom the trust is intended to benefit.
A trust will be either revocable or irrevocable. A classic revocable trust can be a good tool in certain situations; it is the type of trust in which you place assets in it as the creator and you are also the trustee and the beneficiary. It provides for what happens to your property upon your demise and, in fact, it takes the place of your will with regard to the disposition of your assets, although, with a plan like that, an attorney still needs to draft and pore over the will. In order to make that trust effective, as many assets as possible should be transferred into it once it’s executed, including your real estate, investment accounts and anything else.
An irrevocable trust has many different components to it. There are a lot of complex trusts, including tax planning trusts, grantor remainder trusts and charitable trusts, but with the classic irrevocable trust, the person is essentially giving away their assets to the trust as a gift, which actually takes them out of their estate. In most cases, the person will appoint someone else as trustee and designate a beneficiary.
For example, if a grandmother wants to set up a trust for a grandchild to pay for their education, they would set up an irrevocable trust. The key difference between revocable and irrevocable trusts is that a revocable trust can be changed or modified at any point; it is essentially a separate “alter ego” for the grandmother in a way, in that it doesn’t require separate tax returns, but it also doesn’t provide any asset protection or anything of that nature. It just allows someone to transfer their assets to an alternate version of themselves, to be transferred at their passing.
An irrevocable trust creates an entity that is separate, but it can’t be changed or altered at any time, and that entity will have a separate Tax ID number and the trust will have to file its own individual tax return every year.
Does One Still Need a Will With a Revocable Living Trust?
An attorney would actually be committing malpractice if they created a trust without a will, especially what’s called a pour over will, which says that when that person dies, every asset they have “pours over” into the trust. This is necessary because sometimes the trust is created, but assets don’t make it in; maybe they signed the trust on June 1 and died on June 15, and there wasn’t the time, or maybe they just said they would get around to it and never did. Whatever the reason, it’s really important to have a will that determines what happens to your assets when you’re gone.
What is the Lawyer’s Role In the Estate Planning Process?
The estates and trusts lawyer’s role is to basically guide the client through the decisions they need to make, since the average citizen doesn’t know what they need to ask or what they need to think about. It is our job to discuss everything with them, so they discern where they really want their property to go and in what manner and so they can work through what we in our business call the “What ifs.” There’s an awful lot of “what ifs” in estate planning; and we have to help our clients deal with all of them in order to put a good estate plan in place.
The other role of the attorney is not just deal with their estate in a way that provides continuity for their lifetime, including such lifetime documents as the medical and financial powers of attorney. If people don’t plan properly to manage things in place while they’re still alive, their heirs will be spending their estate assets trying to fix some of those problems.
Attorneys in this area help clients make decisions that provide for the least amount of conflict at the most difficult times in a person’s life; when they become incapacitated or they die.
For more information on Different Kinds of Trusts, a free initial consultation is your best next step. Get the information and legal answers you’re seeking by calling (303) 814-2600 today.