Trusts are legal documents that deal with a variety of legal situations. Trusts distribute property, and for some people, they are a better choice than a complicated will. For others, trusts are used to limit exposure of property to taxation at the recommendation of tax professionals.
Trusts are estate-planning tools, as well as tools to help manage property during life. A trust manages the distribution of a person's property by transferring its benefits and obligations to different people. There are many reasons to create a trust and that is why the technique is a popular choice for many people.
All trusts are the same at their core: a property owner transfers legal ownership in the property to a person or an institution, called the "trustee." The trustee manages the property for the benefit of another person, called the "beneficiary." The trustee may be paid a fee for this work, and the trustee must - at all times - act in the best interests of the beneficiary in managing the property. The trustee is legally responsible to the beneficiary if those best interests aren't met.
There are two types of trusts: testamentary trusts and inter vivos trusts (which are living trusts).
Property is not transferred into a "testamentary trust" until a person dies. You might want a testamentary trust to work together with your will, because a testamentary trust lets you place conditions on how and when benefits can be received from the trust, and it also lets you spread benefit payments over a set time period instead of making a lump-sum gift. These are especially useful when children are involved.
An inter vivos trust is created prior to your passing. Living trusts can be revocable (capable of being destroyed or changed) or irrevocable. They are sometimes helpful in avoiding taxation by legally moving the property out of the estate and into a trust.
Living trusts can also help to avoid the probate process if most of the deceased person's assets are transferred to the trust while the person was alive. "Pour-over" wills help here, by specifying that at death, all assets that were not transferred to the living trust should be transferred as part of the estate administration. Trusts also provide privacy because they are not public matters, unlike estates which are available for the general public to see.
There are many variations of trusts to help in any number of situations. To learn the many types of trusts available to you and how they may help in estate planning, it is important to discuss your individual circumstances with an experienced legal professional.
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