By: Angela C. Wetherby
A “trust” is defined as legal relationship in which a person (or sometimes an entity) holds title to and manages assets for the distinct benefit of another person. The specifics of the trust relationship should be memorialized in a written document, which is often referred to as a “trust agreement.” The person who creates the trust is generally referred to as the “settlor” or “grantor,” whereas the person or entity that is responsible for managing the assets is called the “trustee.” A “beneficiary” is the person for whose benefit the trust is created. A grantor may choose to make himself or herself both the trustee and the beneficiary of his or her trust.
Trusts come in various forms. For example, a “living trust” is a trust created during the lifetime of the grantor. A “revocable grantor trust” is a type of living trust. In a revocable grantor trust, the grantor is the trustee and is the beneficiary of the trust during his or her lifetime; however, the trust agreement also names a successor trustee in the event that the grantor dies or becomes otherwise disabled. A revocable grantor trust also lists successor beneficiaries, who would receive the assets of the trust upon the death of the grantor. The grantor may also revoke or modify the terms of the trust until the time of his or her death or incapacity.
One of the perceived benefits of a revocable grantor trust is that, if created and administered properly, it may allow for the avoidance of probate administration. If the grantor transfers all of his or her property to the trust, then there is arguably no need for probate administration. While this option seems attractive to many clients, there are many other factors to consider when it comes to deciding whether to create a revocable grantor trust.
Another type of living trust is the “irrevocable trust.” Like its name suggests, an irrevocable trust does not give the grantor the authority to revoke or amend the trust. This means that, once assets are transferred into the trust, those assets cannot be removed from the trust unless the terms of the trust agreement provide a mechanism for same.
This website and the contents thereof is designed for general information only and information should not be considered as formal legal advice nor the formation of an attorney/client relationship. The purpose of this post is to provide a brief and general overview of living trusts. It is important to consult with an attorney relative to whether a trust is right for you as there may be other estate planning options that are more suitable for your particular situation.
If you have any questions regarding living trusts and/or estate planning, please contact Inosencio & Fisk, PLLC, at (517) 796-1444.