What is a Trust?
A trust is like a legal vehicle created by a grantor who places the assets in the trust in the care of a trustee. It is the job of the trustee to ensure that the law of the trust is adhered to. It is also the job of this individual to ensure that the assets in the trust is well managed according to the wish of the grantor.
There exit three important individuals involved in a trust:
The trustee: The individual charged with managing the assets in a trust
The grantor: This is the owner of the trust. The job of the grantor is to create a trust and select a trustee for the trust
It is the job of the grantor to select a trustee including the beneficiaries of the trust. It is possible to have more than one grantor, trustee or beneficiary involved in a trust.
An individual can decide to set up a trust for a beneficiary because of the following reasons:
- If the beneficiary is a minor
- If the beneficiary is an old person who needs to pay for long-term care
- If the beneficiary is incapacitated and in need of help to manage their affair
What are the Benefits of a Trust?
There are several important estate planning documents and a trust sits on the top-three of that list. Creating a trust can benefit not just the beneficiaries of an estate but the estate owner as well. Below are a few benefits of a trust.
- Helps control and protect assets
Trust are mainly created to ensure that the assets placed in them are well controlled, managed, and protected. A parent or a grandparent who decides to transfer assets to a minor can decide to create a trust. The trust will hold the assets of the parent or grandparent till the minor becomes an adult who is capable of making the right decisions.
Assets placed in a trust are usually controlled and managed by a trustee after the death of the grantor (owner of the trust). Creating a trust is also a good way of maintaining control with responsible individuals (trustee), who manages the content of the trust and making them available to beneficiaries at the right time.
- Help avoid probate
This remains one of the most important benefits of creating a trust. Most times, assets placed in a trust are usually protected from the difficult probate process. This is simply because the assets in the trust are registered under the name of the trustee whose duty is to protect and manage the assets for the selected beneficiaries.
If you would like to create a trust, talk with a competent estate planning attorney for guidance on how to go about this. Having known the importance of a trust let’s delve into the crux of this article.
A revocable trust is a trust that can be modified or altered after its creation without the consent of the beneficiaries. In other words, the grantor of a revocable trust can alter its terms anytime any day without notifying the beneficiaries. They can decide to expunge the name of a beneficiary from the trust and assign new one, or alter the way assets in the trust is to be distributed among each beneficiaries.
Revocable trust may seem cool to you. However, you should note that the flexibility of this trust has its fair share of disadvantages. Because of the flexibility of this trust, and since the grantor wields a high level of control over the trust, protecting it from creditors is quite difficult as opposed to an irrevocable trust.
An irrevocable trust is a trust that cannot be altered after creation without the knowledge of the beneficiaries. In other words, if a grantor of a revocable trust wish to modify certain things in a revocable trust, the individual must alert the beneficiaries. Changes to an irrevocable trust can be made, but this happening is very rare. One of the main benefits of this trust is that, it help protect assets from the taxes of the grantor.