What is a Trust?
A trust is a written agreement wherein a separate entity, the trust, holds title of property and assets and manages those assets on behalf of the individual. The creator of the trust (you) is called a settlor, trustor or grantor. The assets are managed by a trustee (you, during your life) for the benefit of
the beneficiary (you, during your life).
Two Types of Trusts: Revocable and Irrevocable
A revocable trust is a type of trust that can be amended or terminated, at any point, by the settlor, during their lifetime. The settlor is typically the trustee and beneficiary while they are alive and so retains complete control over the trust. Upon the settlor’s death or incapacity, the successor trustee would step into the role of trustee of the trust.
An irrevocable trust is a trust that cannot be amended or terminated without court approval or consent of all the beneficiaries once it has been executed. Once the assets are transferred to an irrevocable trust the settlor no longer retains control of those assets.
Advantages of a Trust
Control of Assets After Death
Instead of immediate distribution of all assets from your estate, a trust allows you to set out exactly when, where and how much each of your beneficiaries will receive from your estate, over time.
Minimizing Estate Tax
Unless an individual has an estate worth over $12.92 million or a couple has an estate over $25.84 million, in 2023, there will be no Federal or Montana estate tax (death tax). For those high-net-worth individuals, a trust can assist in maximizing the estate tax exemption available to an estate. Please consult your accountant for tax advice relevant to you.
Second Marriage Spouse Income
A trust can provide the spouse of a second marriage income while providing the distribution of the remaining trust assets to the children of the prior spouse.
Caring for a Family Member with a Disability
If someone in your family has a disability or special needs and receives any type of disability benefits, they could risk losing their benefits if they inherit from your estate. A trust can provide for the basic needs of a disabled beneficiary while also maintaining their current benefits and care.
Disadvantages of a Trust
Trusts typically cost significantly more to create and administer than an estate plan with only a will. Depending on the complexity, a trust can cost three to four times as much as a simple will.
For a trust to be effective the settlor must re-title assets in the name of the trust, including real property, vehicles and bank/financial accounts. This is called funding a trust. A Trust must be funded to work for you.
Seek Advice from a Trust Attorney
Trusts can be an effective estate planning tool if properly executed and funded, however, they are not for everyone. An attorney will help you consider your personal situation, assets, family dynamics, etc, before proceeding with a trust.