Q: What is a Trust?
A: A trust is another fairly common document that is an integral part of many estate plans. This is a document that you prepare during your lifetime that states how you want your affairs handled and assets distributed after your passing. Some trusts can be very simple, while others quite complex. Like wills, Trusts must be written and executed as per the state's laws for it to be enforceable so care must always be taken to be sure that the trust you are preparing complies with your state's law. Failure to do so could render the Trust unenforceable.
The person making the trust is known as the "Trustor" or "Settlor."
Oftentimes, trusts are used for asset protection, transfer of real estate, tax avoidance and providing support for Medicaid or special needs individuals. These Trusts can be quite complicated and therefore you should always work with an estate planning attorney in the drafting of these documents.
A trust is a fiduciary relationship in which you give another party known as the “Trustee” authority to handle your assets for the benefit of your beneficiaries.
As mentioned already, a testamentary trust is one that is created in your will. On the other hand, a trust that is created during your lifetime, and one that typically holds some or all of your assets while you are alive is commonly called a “Living Trust” or an “Inter Vivos Trust.” These trusts can be revocable or irrevocable, meaning you may or may not be able to modify or terminate them once they are created. Most living trusts will be revocable during your lifetime, and then become irrevocable at your death.
Property contained in the trust will pass to the beneficiaries outside of the probate process. This is one of the great advantages of trusts. Trusts are also confidential as they are never filed with the court either during your life or upon your death. Keep in mind, that oftentimes, if probate avoidance is the only reason to create a trust, it may be more efficient and cost effective to use other "will substitutes" such as beneficiary statements for financial accounts and a Transfer on Death Statement for Illinois residential real property.
A common example of where a trust may be the best tool, is when the Trustor wishes to set direction or constraints as to how their estate property should be managed or used after their death. Here, the Trustor essentially "speaks from the grave" giving direction that the Trustee must follow for how the assets will be utilized. An example may be giving money to be held in trust for the benefit of a grandchild such that the funds may only be used for education, the purchase of a home, or other specific reasons.
Trusts can be fairly inexpensive to create or quite expensive depending on how complicated they are. In addition, the price asked by an attorney to write your trust may vary widely from one attorney to the next.
Wills and Trusts are extremely important documents and at least one of them will be included in virtually any estate plan. In the case of a trust plan, you will also have a “Pour Over Will” that is drafted to be a sort of catch-all to move, at your death, any assets that were not held in the trust during your lifetime that you wish to distribute through the terms of the trust.
Every estate plan is as individual as the person making it. Trusts are overkill for many estate plans these days due to other estate planning tools that are available such as beneficiary designations on bank and investment accounts. That said, trusts certainly still do have a very valid place in estate planning and are often times the right tool for the job. Once your attorney understands your needs and desires, he or she will carefully craft an estate plan for you using the documents that are best suited for your needs.