A comprehensive estate plan will typically include a wide range of estate planning tools and strategies to fulfill all your various estate planning goals. Although a Last Will and Testament often serves as the foundation, or only component of an estate plan, another common estate planning tool is a trust agreement. Unfortunately, there are several myths and misconceptions about trusts that often cause people to shy away from considering a trust for their estate plan. To make sure you understand all your options, in this article, I explain and dispel some of those trust myths.
What Is a Trust?
A trust is a legal relationship that allows one party to hold property for the benefit of another party. Creating a trust requires the following five elements:
- Grantor – the person who creates the trust. Also referred to as the Maker, Settlor or Trustor.
- Trustee – the person, or organization, that manages trust assets and oversees the administration of the trust.
- Beneficiary – the party who receives the benefits of the trust. A beneficiary may be a person, and entity, or even the family pet. A trust may also have both current and future beneficiaries.
- Terms – the Grantor of the trust creates the terms that govern the trust. Terms are customizable and flexible as long as they are not illegal or unconscionable.
- Funding – almost any asset can be held or titled in a trust, including cash, securities, proceeds of a life insurance policy, or real property.
There are several common myths that have developed about trusts over the years, including:
- Assets transferred into a trust are gone forever. This misconception depends on whether you created a revocable or irrevocable trust. If you, as the Grantor and/or Trustee, transfer assets into a revocable trust, you can easily transfer the assets back out of the trust whenever you wish. On the other hand, once you, as Grantor, transfer an asset into an irrevocable trust, wherein you are not the Trustee, the asset become the property of the trust. In that case, you no longer directly control the asset, and could only access that asset indirectly. The Trustee would control the asset.
- Trusts are only for the wealthy. It is true that Trusts were, at one time, mostly used by the wealthy. However, trusts have evolved and are now very user friendly and accessible. Today, the average person can benefit from the addition of a trust and the protections they offer, regardless of the size or value of his/her estate. In fact, if you are concerned about ensuring you are able to leave behind your hard-earned assets for your loved ones, a trust may be ideal.
- Creditors cannot reach assets held by a trust. This depends on the type of trust you create. If the assets are held in a revocable trust, they are not safe from creditors whereas if they are held in an irrevocable trust they are typically out of the reach of creditors because you no longer have any legal ownership interest in the assets.
- You lose control of assets once they are transferred to a trust. This is not always true. If the trust is a revocable living trust and you are the Trustee, you will continue to control the assets held in the trust. If, however, you are not the Trustee of the trust, or if the trust is irrevocable, you will indeed lose some direct control, or all control of the assets.
- Modifying a trust is difficult. Not true if the trust is a revocable trust. A revocable trust can be modified using a trust amendment or a trust restatement, either of which can be completed relatively easily with the assistance of your trust attorney. Additional tools, such as a Special Co-Trustee, or Trust Protector, if included in your Trust, can assist with this as well.
- A Will is a better choice for distributing estate assets. Not true. In fact, trust assets bypass probate and protect privacy, which are primary reasons why people often choose to use a trust to distribute estate assets.
Contact Owings Mills Trust Attorney
For more information, or if you have additional questions or concerns about including a trust in your estate plan, contact my experienced team by calling 410-654-3850 to schedule an appointment.