When it comes to estate planning trusts can be very useful tools. Many of us have heard of a trust and have a general idea of how they work. To understand them better we need to look at who the parties of a trust are.
Who are the Parties to a trust?
There are three parties to a trust, the settlor, beneficiaries, and trustee. The Settlor also known as the grantor is the creator of the trust or person funding the trust and creating the initial rules for how it should be distributed. Beneficiaries are the people that receive the benefits of the trust and collect the proceeds. The Trustee is the manager of the trust or the person who holds the money and makes sure it is distributed to the beneficiaries.
There are two different ways to form a trust, you can set up a living trust or a testamentary trust.
A Living Trust is a trust that is funded while you are alive. The legal name for this type of trust is “inter vivos” trust. Where a living will outlines your healthcare wishes, a living trust has to do with your financial plan. A living trust holds your assets for the designated beneficiaries (the people that will receive the benefit of the trust and collect the proceeds) until your chosen time for distribution. This is a very useful tool for avoiding probate which is both timely and costly.
Testamentary trusts, on the other hand, are not funded until after your death. Testamentary means anything having to do with your possessions after you have died (hence the “Last Will and Testament”). These trusts can be created through your will and funded with proceeds from your estate.
What are the advantages of a trusts?
Leaving your assets in a trust will ensure your loved ones, will have the long-term benefits of someone with forethought and self-restraint. A trust can include a provision called the spend thrift clause which can help protect your assets from creditor claims. A trust can also be distributed over a number of years. You can also set up payments to be given upon certain life achievements, such as graduation and getting married. Furthermore, you can handle certain life challenges, such as substance abuse and addiction, by triggering a freeze on payments until the person seeks counseling. Trusts are vital to your estate plan when minor children are involved.
You will have to take steps to transfer your assets into the trust, such as the deed to your home, your bank accounts, or other financial assets. If you want greater control over the way your money and assets will be distributed after you are gone, consider adding a testamentary trust to your estate plan. To see which trust will benefit you the best contact a knowledgeable estate planning attorney, like Griffith Xidias Law Group.