Should I Create a Trust? How a Trust May Be Beneficial, and What Are the Key Considerations?

There are two general types of trusts: Irrevocable trusts, which cannot be changes or amended, and Revocable trusts, in which a life time right to amend or revoke the trust is reserved.

More fully, a revocable trust is a trust that may be terminated or revised by the grantor (the person creating the trust) during that person’s lifetime.  By establishing a revocable trust, a grantor can retain control and receive the benefits of their assets during their life.  They can also amend the trust to change trustees, beneficiaries, or any other terms of the trust.  Upon the grantor’s death, the successor trustee(s) can immediately (and without court process) take over administration of the trust assets, and, if allowed under the trust provisions may make timely disbursements to beneficiaries.

Can You Avoid Creditors and Debts by Establishing a Revocable Trust?

No.  While a revocable trust may be beneficial for estate planning purposes, a revocable trust does not protect against the grantor’s creditors.  (In other words, you can’t escape your debts by putting all of your assets into a revocable trust.)

Is a Trust Necessary to Minimize Taxes?

An Irrevocable trust may be helpful in some cases to minimize taxes; however, a Revocable trust will not make a tax difference.  Bob will provide guidance as to whether a trust may be beneficial for you with respect to tax minimization.

How May a Revocable Trust Be Helpful in Estate Planning?

A trust may be beneficial in the following instances:

  • You want to avoid the costs, delays, and inconvenience of a probate (court) proceeding. By establishing a Revocable Trust you can maintain control of your assets and income during your life and retain the right to terminate or amend the trust during your life, and provide that upon your decease your chosen successor(s) will immediately have the legal right and power to control your assets in accordance with the terms of the trust.
  • You want to provide for the welfare of specific people, such as children who may inherit before they become adults or a special needs child. If  you die before your children become adults, it may be helpful to create a trust that provides for the management of the assets until your children reach a stated age.  Similarly, if you have a special needs child, a “special needs trust” can be funded after you death to provide such care (it’s important that this type of trust be carefully drafted so that it does not negatively impact government aid that might be available for care).
  • You are a business owner and want to keep the business “in the family.” Family business ownership and management can become complex as a family grows.  A trust can be used to hold family assets, which can provide for governance matters and payment to beneficiaries.  Importantly, a trust can also be used to prevent the ownership of the business from being transferred to a non-family member in the event of a divorce.

The Practicalities of Trusts

Trusts require a modest cost to draft, as well as to transfer assets into the trust.  Thereafter, you are free to revoke or amend the trust or transfer assets in or out of the trust.

In determining whether a trust will be right for you, it’s important to consider the benefits of having a trust, and to balance these benefits against the costs of a trust.  When Bob meets with clients, these matters are discussed to determine whether a trust may be beneficial.