A trust is an estate planning tool that can help you avoid probate and tax burdens, maintain continuity of ownership in the event of death or disability, and avoid access to property by creditors.
When you create a trust, you create a separate legal entity. You can then title property in the name of the trust. Once you transfer property to a trust, you no longer have ownership of the property, but may use the property pursuant to the terms of the trust. There are a number of advantages to a trust:
- Any property owned by a trust stays in the trust upon the death of the trustor (the person who created the trust and transferred the property to the trust). There is no legal action that needs to take place to transfer ownership. The use of the property will still be governed by the terms of the trust.
- Because the property is owned by the trust, it is not subject to the probate process—the probate process is only concerned with assets owned by the deceased
- Property owned by a trust may be inaccessible to creditors
- Property owned by a trust may be exempt from estate taxation
As a general rule, the cost for preparing a trust is substantially more than the cost for preparing a will. In addition, there may be expenses incurred in the administration of a trust.
Related GetLegal.TV Videos
The Different Types of Trusts
Trusts are generally categorized as:
- Revocable or irrevocable—A revocable trust may be changed or terminated by its creator at any time, pursuant to the terms of the trust. An irrevocable trust conveys a permanent interest in property. A revocable trust is considered personal property for creditor and estate tax purposes. A revocable trust typically becomes an irrevocable trust upon your death.
- Living vs. testamentary trusts—A living trust (also known as an “inter vivos” trust) is one that goes into effect during your lifetime. Most living trusts are set up to stay in place in the event of your death. A testamentary trust is one that is created upon your death, typically pursuant to the terms of a will.
The AB Trust
An AB trust, also known as a credit shelter trust, allows a married couple to pass the maximum amount of an estate to their children or other beneficiaries, but also ensures that the surviving spouse is financially comfortable during his or her lifetime.
With an AB trust, each spouse leaves most or all of his or her property to the trust rather than leaving it to the surviving spouse. The surviving spouse can use that property, with certain restrictions, but doesn’t own it outright. This allows for larger tax savings. The property isn’t subject to estate tax when the second spouse dies because the second spouse never legally owned it.
Four Things to Know About Traffic Stops
You’re driving down the road; you glance down at the speedometer and see that you’re driv…Read More 11 Dec 2018, Tuesday
Small Claims Court: An Overview
Let’s say that you have a dispute with your landlord. You were asked to pay a security depo…Read More 10 Dec 2018, Monday
Divorce and Taxes
If you are facing a divorce, you know that there are plenty of difficult, even painful questi…Read More 07 Dec 2018, Friday