Legal Matters
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The phrases “I want to set up a trust” or “you need a trust” are heard often in estate planning attorneys’ and financial advisors’ offices. The phrases are simple but can mean many different things. The first thing to understand is that a “trust” is not a simple document where the client fills in the blanks. We like to say that a trust is not like a one size fits all t-shirt. Trusts are not just for the super wealthy either.
Trusts are contracts designed to fulfill a client’s specific goals. These goals determine the type of trust and the terms of the trust. Even the title of the trust does not tell the reader very much. A family trust can mean many different things depending on the wording of the document. A revocable trust should mean that the trustmaker can revoke or terminate the trust, but the terms and conditions of the trust can be as varied as the colors of the rainbow. Two of the basic types of trusts are:
1. Revocable Trusts allow the trustmaker to stay in control of the trustmaker’s assets. The trust should avoid the probate process at the trustmaker’s death and make the transfer of assets to the designated beneficiaries much faster and easier. These trusts also provide more privacy since they can avoid public access to probate records. Revocable trusts do not have asset protection features of irrevocable trusts precisely because the trustmaker is still in total control.
2. Asset Protection Trusts, if designed correctly, should protect the trustmaker’s assets from creditors. They are generally irrevocable. The laws of the state where the trust is created have a lot to do with the level of protection the trustmaker receives. Some states have laws that offer more protection than others.
Using the framework of these trusts, a trustmaker may do everything from directing when a minor grandchild receives an inheritance to implementing plans to reduce capital gains taxes, income taxes, investment for growth, and estate taxes. Most importantly, remember that any form of trust planning takes an experienced estate planning attorney to guide you through the process of determining the appropriate type of trust and the specific terms that should be included in the trust. The second most important item is that you must then put your assets into the trust by updating titles of financial accounts, real estate, and real property.
-Melanie B. Holliman, JD
Partner at Bradford & Holliman
Estate Planning, Trusts & Special Needs
205-663-0281
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