A trust is a part of your estate plan which controls how your property is used by you during your life and after your death. Think of it as a container which can hold assets with a manager to oversee investments, distributions, and taxes. Different kinds of trusts achieve very different estate planning goals, but they all have some things in common.
A trust is created by a “trustmaker” whose money and/or property fund the trust. It is created to achieve one or more specific estate planning objectives, and it has terms which help to ensure that objectives are reached. The terms are contained in a document called a trust declaration and in the Tennessee Uniform Trust Code. These terms govern who benefits from the trust assets now and in the future. A trust is overseen by a trustee, who manages the investments and must follow the terms set forth in the trust and in our law. The trust preserves and/or protects property for a beneficiary, who will eventually receive part or all of that property or the benefit of the assets. Sometimes the trustmaker and the beneficiary may be the same person.
Trusts can help people to achieve many different goals. Not all trusts are the same; it is very important to choose the right kind of trust to suit your particular circumstances and meet your specific goals. There are two general types of trusts: revocable and irrevocable trusts. This week we will take a closer look at revocable trusts, and next week we’ll share some more information about irrevocable trusts.
The revocable living trust is a wonderfully flexible tool for estate planning, particularly if you own real estate in other states besides Tennessee. This kind of trust can make your assets easier to manage, particularly if you become incapacitated or disabled during your life, and can reduce the inconvenience and expense of probate administration at your death. Assets properly titled to the trust pass through this trust rather than your probate estate when you die. You have the added protection of asset management and high levels of fiduciary duty under a trust if you become ill or otherwise disabled. Living trusts are revocable and amendable. Separate tax returns are not required as long as the trust remains revocable, and there is generally no tax consequence to using the revocable living trust. Often in living trusts, the trustee and the beneficiary are the same person (or husband and wife).
Benefits of a Revocable Living Trust
- Control your property, perhaps years after your death
- Amend the trust easily
- Manage assets while you are living, especially if disability arises
- Avoid probate and its costs, delays, and publicity
- Protect families with children by prior marriages
Limitations of a Revocable Living Trust
- Does not help to qualify for Medicaid, Veterans Assistance, or other public benefits programs
- Does not protect assets from claims of creditors
Before establishing a trust, it is vital to have a clear understanding of your goals and to ensure that creating the trust will not undermine your other estate planning objectives. Not all trusts are appropriate for all needs. Tune in next week to learn about the types of irrevocable trusts that can help you to achieve different financial and legal planning goals.
If you need help getting started with your trust or thinking about which type of trust might be right for your unique situation, get in touch with us at Elder Law of East Tennessee. We will guide you through the process of setting up your trust and will ensure that it will work with your other estate planning documents to accomplish your goals.