The Second Pillar: The Trust

A trust is a legal document allowing a third party, known as a trustee, to hold and manage assets on behalf of the beneficiaries. In some trusts, you may serve as both the trustee and beneficiary. The benefit of using a trust is the flexibility in managing your assets in life as well as directing how and when to pass assets to heirs with privacy, control, and efficiency.

A well-drafted trust will avoid the cost in time and money of the probate process and ensure your beneficiaries receive assets in a timely manner. Careful planning of the trust structure and strategy may significantly reduce taxes as well as protect the legacy you wish to leave from creditors of beneficiaries or mismanagement of assets by your heirs.

Who is named in the Trust?

Grantor(s)

The Grantors are the individuals creating the trust and placing assets into the trust.

Trustee(s) and Successor Trustee(s)

The Trustees are the individuals responsible for managing the trust assets to satisfy the purpose of the trust. Many grantors name themselves as trustees in order to manage assets during their life and name a successor trustee to manage assets when they are no longer able to and when they pass away.

Beneficiaries

The Beneficiaries are those who receive distributions from the trust. Many grantors name themselves as the beneficiaries in order to receive the benefit of the assets they are managing and name their children, loved ones, or charity as beneficiaries to receive assets at their passing.

You may have heard of the following types of trusts:

  • The “A - B” Trust sometimes called the Marital and Bypass Trust

  • The Revocable Living Trust and Irrevocable Trust

  • Irrevocable Life Insurance Trust, known as an “ILIT”

  • Charitable Remainder Trust

  • Qualified Terminable Interest Property Trust, known as a “QTIP”

  • Grantor Retained Annuity Trust, known as a “GRAT”

  • The Special Needs Trust

The Right Trust for You

It would be unwise to explain each trust and leave clients to sort out which is best for their situation. Not all trusts are alike and both federal and state laws vary significantly. An attorney with knowledge of your assets, family dynamic, and desired outcomes will be able to guide you in selecting and forming the appropriate trust.

Continue: The Power of Attorney