What is a Trust?

Using a Trust to Distribute Property

Many Fort Wayne area individuals may consider using a trust as a part of their estate plan. Understanding how to choose a trust and how to set one up may help you determine if this tool should be part of your estate plan. A trust is a legal entity used by individuals to provide for their loved ones while they are living or after they have passed away. The trust contains a written set of rules that determine how, when, and where a gift or property is distributed to a beneficiary. Because trusts are governed by state law you must follow the law in your state to ensure that the trust is set up correctly. You will also want to select a reliable person to act as trustee.

Your first step is to decide the type of trust you may want to use. The type of trust depends upon when you want the beneficiaries to receive the property, whether or not you have the power to revoke the trust, and what restrictions you want to place on the trust. There are four common types of trusts, and their purposes vary.  

       -  Testamentary Trust

       -  Inter Vivos Trust – also known as a Living Trust

       -  Revocable Trust

       -  Irrevocable Trust

Testamentary trusts are created in a will and are set up to distribute property after you pass away. They may be amended or revoked during your lifetime while you have the mental capacity to sign a will. They are most useful in planning for distributions to children after the death of the surviving spouse.

Inter vivos, or living, trusts are set up during your lifetime and allow a beneficiary to have access to a gift or planned distributions while you are still alive. These trusts are often used to hold real estate owned in a state other than your home state.

Revocable trusts allow you to reclaim your assets if you decide that trust’s terms no longer fit your needs or wishes. Revocable trusts are created during your lifetime and are similar to inter vivos, or living, trusts.

Irrevocable trusts cannot be revoked once they are established. Irrevocability becomes important in gift and estate tax planning strategies. Making your trust irrevocable may remove the value of the assets in the trust from federal and state death taxes.

In addition to these general categories, you can place a variety of restrictions on how your trustee will manage and distribute assets held in the trust. For example, you may prohibit distributions until a beneficiary has obtained a certain age or completed a college education.

A Fort Wayne estate planning attorney can help you decide which type of trust best suits your needs, then you may proceed to establish the trust. Generally, there are three parts to setting up a trust.

Name the beneficiaries. A beneficiary is a person you name to receive assets from your trust. You may define in the trust terms when and how the beneficiary will have the right to receive the assets you have set aside for them.

Name the trustee. You will name a person, which may be yourself in some cases, to act as trustee. The trustee controls, manages, and files tax returns for the trust. This person should be reliable because the trustee will hold legal title to assets owned by the trust. In some cases, you may select a bank or financial institution to act as trustee.

Fund the trust. You may fund a trust with a bank account, a brokerage account, real estate, or other assets. Once the property is transferred to the trust, the property is known as the trust estate. This property is then subject to the trustee’s control who may then pay expenses and taxes related to trust assets and make distributions to the beneficiaries.

For more information about establishing a trust that fits your needs, please call our office. We will be happy to assist you in your planning.