What is a Trust? A Beginner's Guide
It’s a common misconception that trusts are reserved for the extremely wealthy, who can leave their considerable assets to well-off beneficiaries. This is only half-true—trusts do allow you to leave your assets to beneficiaries who you name, but nearly anyone can benefit from creating a trust, regardless of wealth levels. In order to better understand how you can benefit from a trust, it’s important to know how they work, which we discuss in further detail on this blog.
How a Trust Works
To put it simply, a trust is a legal agreement between three people, known as the “trustmaker,” the “trustee,” and the “beneficiary.” The trustmaker, also known commonly as the “grantor” or “settlor,” is the individual who creates the agreement. The trustee is the person or entity responsible for managing the property which the trustmaker transfers to and titles in the name of the trust. The beneficiary is the people or entities who receive the property in the trust in accordance with its terms.
In essence, a trust is a binding agreement in which one person (the trustmaker) transfers their property to a neutral party (trustee), with the purpose of then distributing it to a beneficiary according to the terms of the trust. The big difference between a trust and a will is that a will can only go into effect upon its creator’s death, whereas a trust can go into effect before, upon, or even some time after their passing.
The different kinds of trusts, which we will discuss in a moment, can all have different tax ramifications, different purposes, and different terms, depending on your wishes. The best way to set up a trust and ensure that it will function as you wish is to retain the assistance of a Tulsa estate planning lawyer.
Types of Trusts
A living trust is exactly what it sounds like: a trust that goes into effect during its creator’s lifetime. These are a great way to set aside property to help care for loved ones as well as alleviate tax burden, since they are taxed separately from other typical estate tax expenses. These are the opposite of “testamentary” trusts, which go into effect fully after the creator passes away. These are typically formed in the execution of the creator’s will, which includes a provision that says certain property is to be transferred to the trust upon their death.
There are two types of living trusts: revocable and irrevocable. A revocable trust is more frequently used to set aside resources and designate a guardian or conservator should the creator ever become mentally incapacitated. An irrevocable trust’s primary use is to move assets out of the creator’s name, and thus reduce the value of their estate for tax purposes. However, you cannot transfer your property back if you place it in an irrevocable trust.
Other types of trust include life insurance trusts, special needs trusts, and even spendthrift trusts, each with their own types of rules and specialized purposes. An attorney can help you determine which option is right for you and even help you set up your trust to help protect your assets and the future of your loved ones.
At Richardson Richardson Boudreaux, PLLC, our team of attorneys can assist you with the creation of a trust to protect your assets. Our knowledgeable and experienced Tulsa estate planning attorneys can advise you on how best to protect your assets from heavy estate taxation and prepare your possessions for a swift and stress-free passing to your loved ones. Each day is not guaranteed so it’s never too early to start planning ahead; call us today and speak with one of our attorneys.Reach out to Richardson Richardson Boudreaux, PLLC today by dialing (918) 347-6456.