A trust could allow you a certain level of control over your estate that wills cannot provide. The structure of trusts allows you to decide how and when your assets will be distributed. If you have young children, this can be a great way to ensure they do not receive their inheritances in one lump sum.

A trust is a fiduciary arrangement whereby a grantor (also called a trustor or settlor) gives a trustee the right to hold and manage assets for the benefit of a specific purpose or person.

Trusts can have a limited term, the duration of the grantor’s or another person’s lifetime, and can hold assets and distribute them after the grantor’s or other person’s death.

Unlike wills which take effect upon death, trusts become effective upon the transfer of assets to them. A “living trust” can be created during a grantor’s lifetime. Or a trust may be a “testamentary trust” created after death in accordance with directives in the decedent-grantor’s will. Trusts are frequently used in estate planning to benefit, and provide for the distribution of assets to, the heirs of the grantor. One of the main reasons for using living trusts is to avoid the increased costs, increased publicity, and the delay of the probate process upon disability or death.

Trusts

A. Basic Purpose. Trusts can be used for the following basic purposes:

1. to provide for the management and preservation of your estate,
2. to provide methods for reducing or eliminating taxes,
3. to provide for the disposition of your estate in a manner that cannot be accomplished through outright bequests,
4. to avoid probate in some cases, and
5. to protect assets from your beneficiaries’ creditors.

B. Inter vivos vs. Testamentary. An inter vivos trust is created during the lifetime of its grantor and may be revocable or irrevocable; a testamentary trust is created under a decedent’s will and becomes irrevocable upon the decedent’s death.

C. Trustees. The trustee is the individual or company that administers the trust by following the grantor’s instructions regarding the distribution of assets.

D. Distributions. The grantor may provide the trustee with explicit directions about how and when to distribute trust income and principal; or, the grantor may vest the trustee with broad discretion regarding these distributions.

E. Persons with Special Needs. Trusts can also be an effective estate-planning tool for persons with special needs. Often a person with special needs qualifies for the various federal and state assistance programs based upon that person’s financial resources, but an inheritance received by a person with special needs may disqualify that person from certain benefit programs.

F. Bypass Trust. For couples whose combined net worth may exceed the estate tax exempt amount (called the “Applicable Exclusion Amount”), use of a Bypass Trust can be very effective in avoiding or significantly reducing estate taxes. This allows a portion of the couple’s assets to be placed in a trust upon the death of the first spouse, taking advantage of the full tax-exempt amount the year of the spouse’s death, without burdening the surviving spouse’s estate with those assets, which could result in substantial taxation upon the death of the second spouse. Typical provisions include:

1. The surviving spouse can be named trustee or co-trustee.
2. Permits distributions for the health, support and maintenance of the surviving spouse. Additional distributions can be made for any purpose, provided the right is limited to the greater of $5,000 or five percent of the trust property per year. If broader distribution powers are desired, an independent trustee must be appointed.
3. Permits distributions to descendants.
4. The surviving spouse can be given a special power of appointment to direct disposition of trust assets by Will or during his or her lifetime, to provide the flexibility to respond to changing circumstances after the death of the first spouse.

There are many different types of trusts that can be utilized in your particular estate plan.  Different trusts serve different purposes. Estate tax savings can be an important part of trust planning, but there are many other facets of trust planning to consider and incorporate into your estate plan.

Your decision about using a will or trust or both should depend on the nature and value of your assets, the age and capabilities of your heirs, tax planning considerations, and the complexity of your bequests.  Ultimately, to protect the value of your assets and to realize your intended benefits for your heirs, thoughtful estate planning is essential.

It is important to establish an estate plan earlier rather than later in life. Careful use of wills, trusts, or both, can ensure your assets and possessions end up where you want them to go. Making an estate plan a priority now can save money and time later and help your loved ones avoid potential financial hardship and conflicts.