What is a Trust?

• Probate Avoidance
• Capital Gain Tax Savings
• Retention of privacy of family assets and finances
• Avoidance of conservatorship
• Creditor protection for your beneficiaries
• Control of distribution and management of assets during life and after death;
• Death tax avoidance or reduction

When you put your property into a trust, the Trustee of that trust owns the property - you are no longer the legal owner of the transferred property. This doesn't mean you don’t have control of your assets. Since you will probably be your trust's initial Trustee, you will still be in charge of your property. You can do whatever you want with it - you can leave it alone, take it out of the trust, or use it as you had been before the trust was created. A living trust is an easy way to organize your assets and manage them as a single unit. Most importantly, a living trust allows for a timely and efficient property distribution when you die.

Not everyone needs a trust, but most people should consider one. Setting up a trust is an excellent way to control what happens to your estate, regardless of its size, to possibly reduce estate taxes and protect against the expense and aggravation of probate.

Unlike wills, trusts are not subject to probate and therefore allow you to keep your affairs private.

Living Trusts

A trust that becomes effective during the grantor's lifetime is called a "living trust" or an "inter-vivos trust." The term "inter-vivos" is a Latin term meaning "during life."

Testamentary Trusts

A trust that is created under a Last Will and Testament is called a "testamentary trust." A testamentary trust, by definition, can only become effective after the testator's death because the Last Will and Testament does not become effective until that event occurs. Even then, the Last Will and Testament must be admitted to probate before it - and the testamentary trust created therein - becomes effective.

A/B Trust

This is often called an exemption trust, bypass trust, or credit shelter trust. Regardless of the name, its purpose is to reduce or eliminate Federal Estate and Gift Taxes for a married couple's estate. This type of estate plan sets up an irrevocable trust that will hold the assets of the first spouse to die in trust. The amount transferred into the irrevocable trust (the "B" trust) will not be taxed for federal estate tax purposes when the second, surviving spouse dies.

Another very basic classification of trusts is whether they are revocable or irrevocable. If the grantor reserves the right to revoke the trust after it becomes effective, including the right to change any of the terms or provisions of the trust, then the trust is said to be a "revocable trust." If the grantor gives up the right to revoke the trust after it becomes effective, including the right to change any of the terms or provisions of the trust, then the trust is said to be an "irrevocable trust."

It is important to note that this classification only applies to living trusts. A testamentary trust is always revocable during a testator's lifetime because a Last Will and Testament cannot become effective until after the testator's death and after it has been admitted to probate. Once a testator has died and his or her Last Will and Testament has been admitted to probate, the underlying testamentary trust becomes irrevocable because the only person who could revoke it or terminate it is no longer living. So, when we talk about revocable trusts and irrevocable trusts, we're not talking about testamentary trusts - we're only talking about living trusts.

Yes. A will deals with any property that was not included in the living trust. This property may have been left out for any number of reasons. For example, property that wasn't properly transferred into the trust will be distributed under your will. Property you bought or received after the trust was created will be distributed according to your will.

Yes. If you have an individual trust, you can transfer property in and out of it whenever you want - you don't need anyone else's permission. If you have a shared trust, you may need to get your co-trustee's consent if you're transferring property you own together.

As the trustor, you retain the right to change any of the terms of your trust anytime you wish.You should consider amending your living trust if, for example,

Usually, yes. The most common example of such property is a house with an attached mortgage. Your beneficiary becomes responsible for the debt (i.e., the mortgage) when he or she receives the property. If you want your trust to pay the balance of a mortgage or other debt on an asset before that property is distributed to a beneficiary, you should talk with an attorney. Also, it is advisable to contact the lender first before you transfer anything into your trust.