Trusts are not just for the rich and famous; they are legal mechanisms that allow you to put conditions on how and when your assets will be distributed after your death. Trusts also allow you to reduce your estate and gift taxes and to distribute assets to your heirs without the cost, delay and public records of probate court. Certain types of Trusts can also offer asset protection from creditors and lawsuits.
One of the primary purposes of estate planning is to ease the burden of your passing for your loved ones. This includes reducing the costs to your beneficiaries of your estate. Using a trust as an estate planning tool allows property to pass outside of probate, the legal process which administers an estate. Not only can this save on probate court costs and legal fees, but can distribute these assets more quickly.
Establishing a trust involves legal documents, and a simple, Living Trust may involve the following:
1. A Grantor establishes a Trust to benefit his children (called the beneficiaries).
2. The Grantor transfers an asset or assets, such as a piece of real estate, to the Trust, which is known as “funding” the Trust.
3. The Grantor names a Trustee to manage this asset. In a living trust, the Grantor can also act as the Trustee, and name a Successor Trustee to take over when he or she passes away.
4. The property is managed by the Trust. When the Grantor passes away, the property does not go through Probate, since the deceased was not the legal owner, and the Successor Trustee takes over the Trust Administration duties.
5. The Trustee manages the Trust for the benefit the named beneficiaries, which may (but does not have to) involve selling the property and distributing the proceeds to the beneficiaries, thus terminating the Trust.
As you can see, this type of property transfer can be used by more than just the wealthy – in fact, most smaller or moderate sized estates can benefit from many of the estate planning tools used to form a comprehensive estate plan.