Trusts: A Common Estate Planning Tool

A trust is one of the common estate planning options individuals or couples choose. Trusts used in estate planning include revocable and irrevocable trusts created by agreement during the life of the trust settlor—i.e. the person who creates the trust. Revocable trusts (often called a “living trust” or “inter vivos trust”) are the most common trusts that an individual or couple creates during their lifetime. During life, property is held in the trust and managed by the trustee, who is often the settlor who created the trust.

Like a will, a trust can provide instructions for how the trust property is to be distributed upon death. The trust may end upon the death of the settlor and provide instructors for how trust property is to be distributed among the beneficiaries. However, the trust might also provide that it continue for a number of years and the income and principal of the trust be distributed over time. For example, the trust may provide income to beneficiaries each year and principal for specific purposes – such as for health, education, or support. Then, when the beneficiaries reach a certain age, the trust may provide that it is to end and the trustee is to distribute the balance of the trust property to the beneficiaries.

In the estate planning context, a trust provides great flexibility and serves a variety of purposes, such as:

  • To ensure privacy in the transfer of property
  • To manage investments and other assets during life, upon incapacity or illness, and upon death
  • To protect property for beneficiaries, including protection from creditors
  • To avoid a conservatorship for minors and other persons who are legally incapacitated
  • To avoid probate and the costs associated with probate
  • To save taxes, including federal and estate and inheritance taxes, as well as income taxes.
  • To reduce the likelihood of a challenge made by disappointed beneficiaries.

Although there are tremendous benefits to trusts, not everyone needs one. Whether a trust is a suitable vehicle for holding and transferring property depends on individual circumstances and goals. For many individuals a will is the most suitable and cost efficient vehicle for distribution of property to beneficiaries. For more information on wills, you might read the following article on Wills: What They Accomplish.

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