There are a wide variety of legal documents that are referred to as a “Trust,” so in order to determine how a Trust works you must first define what type of Trust you are looking at. In this Blog, a Trust refers to a Living Trust also known as a Revocable Trust, Intervivos Trust or a Revocable Living Trust. There are many other different types of Trusts out there such as Irrevocable Trusts, Charitable Trusts, ILITs, QTIPs, and the list goes on. For the average person living in the middle class, a Revocable Trust is perfect for estate planning purposes.
Why would I create a Trust?
The most common reason for the average person to create a Trust is to avoid the Probate Court process. If someone passes with only a Will, then their assets and estate must be processed through the Probate Court. However, if a person incorporates a Revocable Trust into their estate plan, then they will have given themselves the ability to appoint their Successor Trustee to their Trust, which is very similar to appointing an Executor/Executrix of their Will, but unlike dying with only a Will, the Trustee is allowed to act immediately. This avoids the delay associated with waiting for the Court’s approval, which is the requirement when someone dies with only a Will.
How does a Trust actually work?
In order for a Trust to actually work, the person creating the Trust, must get the title of their assets into the Trust. The process of putting assets into a Trust is referred to as “funding the Trust,” and is a necessary step in order for the Trust to truly accomplish its goal. In order for the Trust document to effectively help to avoid the necessity of probate, the person who created the Trust, referred to as either the Grantor or the Settlor, must take the time to transfer any assets to the Trust. I often explain to Clients that they should consider their Trust documents as a metaphorical box for all of their worldly possessions and despite the repeated warning to never do so, in this case it is best to put all of your eggs in one basket. Transferring an asset to your Trust is usually a simple retitling process changing the asset from the person’s name individually to the person’s name as Trustee of the Trust.
Once a person’s assets are transferred from themselves individually into their Trust then the Trust is free to do the job of probate avoidance. When the person who created the Trust passes away, the Successor Trustee is free to jump in and take on the task of administering that person’s estate immediately without the delay associated with the often lengthy and expensive Court process. The assets owned by the person through the Trust are not in their name as an individual and therefore are not subject to the probate process. A protective measure, called a Pour Over Will is often put in place in case the Grantor forgets to transfer all of their assets into the Trust during their lifetime. The Pour Over Will is designed to “catch” anything that was inadvertently left out of the Trust during the person’s lifetime.
What do I do if I am interested in learning more about Trusts?
If you are interested in learning more about Trusts then connect with our estate planning team. You can be set up for a complimentary consultation so that we can get to know you and your particular situation so that we can then make recommendations on how to meet your estate planning goals.
We serve the Greater Nashua area and are here to help. To meet with one of our experienced attorneys, please call us today at 943-5647.