When most people think of estate planning, a last will and testament is probably the first thing that comes to mind. Creating a will is a critically important part of everyone’s estate plan, but it is far from the only available tool. Some people might want to create a trust in order to protect their assets, provide support to themselves or someone else, or allow their heirs to bypass all or part of the probate process. A person can create a trust while they are still alive, or they can include instructions in their will that establish a trust after they are gone. An estate planning attorney who practices in Maryland or DC can discuss your options with you and advise you on whether a trust might be right for your estate plan.
A trust is somewhat difficult to describe. A person known as the trustor or grantor gives another person, the trustee, title to certain assets, with the understanding that they will manage those assets for the benefit of one or more people known as beneficiaries. A trust is therefore a fiduciary relationship between the trustor, the trustee, and the beneficiaries. The trustee owes duties of care to both the trustor and the beneficiaries.
A trust is a legal entity that can hold title to property, although it is different from legal entities like corporations or partnerships. The document that establishes the trust and sets out the trustee’s duties is known as the trust instrument.
A grantor can create a trust as part of their estate plan, or they can create a standalone trust for various purposes. Standalone trusts can provide a way for parents or grandparents to set money aside as a college fund for their children or grandchildren, or to provide them with a source of supplemental income. This kind of trust is often associated with extremely wealthy families — e.g. “trust fund babies” — but trusts can be a useful tool for many people. For example, a special needs trust can provide additional support to someone with a disability or injury without affecting their eligibility for benefits like Medicaid.
Trusts can be either revocable or irrevocable. As the name suggests, a grantor can change or revoke a revocable trust. Revoking it would return the trust’s assets to the original owner. A grantor cannot change the terms of an irrevocable trust once it has been created.
A trust is not a substitute for a will. Whether or not you decide to include a trust in your estate plan, you should have a will. What a trust can do is allow you to bypass many of the probate proceedings that are required for a will. A trust can also help large estates avoid gift tax and estate tax liability.
Wills must go through probate court procedures. This involves review of the will by the court, and the opportunity for family members and other interested parties to challenge the will itself or various details of the estate. If the decedent has already conveyed their property to a living trust, with instructions on how to distribute the assets upon their death, that does not require the same review by the probate court. It is also not subject to the kinds of challenges people can raise regarding a will.
A trust can also maintain the privacy of an estate and its heirs. Since the trust does not require a court proceeding, it does not necessarily become part of the public record.
There are more kinds of trusts than we can cover on this page. For the purposes of estate planning, the most important kinds are living trusts and testamentary trusts. A trust created to manage a person’s assets while they are alive is known as a living trust or, if you prefer Latin, an inter vivos trust. A trust that does not come into existence until the grantor dies is known as a testamentary trust.
A living trust allows the grantor to use the trust assets for their own benefit during their lifetime. The grantor can serve as trustee for their own living trust, if they are capable of doing so. The trust instrument can name a successor trustee to take over if the grantor dies or becomes incapacitated, and can instruct that person on how to manage or distribute the trust assets.
Living trusts can be revocable or irrevocable. They can be revocable during the grantor’s life, and become irrevocable upon their death or incapacity. This allows the grantor to retain control over the terms of the trust while they are able, and to ensure that their heirs cannot change any part of the trust.
A testamentary trust is created as part of a grantor’s last will and testament. The grantor continues to hold title to their assets during their life. The assets pass to the trust upon their death, with their heirs as the trust’s beneficiaries. This type of trust is always irrevocable, since by its nature it does not exist until the grantor has died.
A grantor can use a testamentary trust to exert more control over the management and distribution of their estate after their death. The trust instrument can include more explicit instructions than a will in many situations, and those instructions do not need the approval of a probate court.
A testamentary trust might be required if a person is bequeathing assets to one or more minor children. A trustee must manage assets left to a child until they become an adult.
Estate planning lawyer Joyce Ann Williams counsels individuals and families in the District of Columbia and Maryland regarding estate administration issues, helping them understand their rights and options. Please contact her today at info@jwilliamslaw.com or at (301) 585-1970 to learn more about her probate services.
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