For most people, a Last Will and Testament serves as the foundation of their comprehensive estate plan. Your Will, however, is rarely the sum total of your estate plan. Instead, it is usually the springboard from which other estate planning tools, documents, and strategies grow. Over the last several decades, trust agreements have become one of the most common additions to a well thought out estate plan due, in large part, to the diversity of trusts available and the numerous estate planning goals that can be achieved using a trust. If you are considering the inclusion of a trust in your estate plan you will need to know what is involved in creating a trust. Only an experienced North Carolina estate planning attorney can actually create a trust agreement for you; however, a better understanding of the basic components of a trust is a good place to start for now.
For estate planning purposes, a trust is a separate legal entity that is created using a written trust agreement document. Trust agreements, however, are entered into every day by people who do not even realize they have created an oral trust. At its core, a trust a legal agreement created by an individual in which one or more persons hold the individual’s property subject to certain duties to use and protect it for the benefit of others. The elements required for creating a trust include:
- Maker or Trustor – this is the individual who creates the trust and who creates the terms that govern the trust agreement.
- Trustee – the individual, or entity, that oversees the trust. A Trustee has a number of important duties and responsibilities, including, but not limited to:
- Protecting and growing trust assets
- Following the trust terms
- Communicating with trust beneficiaries
- Preparing and paying trust assets
- Disbursing trust assets to beneficiaries.
- Beneficiary – the beneficiary receives the benefits of the trust. A beneficiary can be a person, a charity, a group of people, even a pet. Some trusts even allow you to combine charitable and non-charitable beneficiaries in the same trust.
- Trust terms – these govern the management of the trust as well as provide instructions for investing trust assets (if applicable) and distributing those assets to beneficiaries. The Trustee is required, by law, to follow the terms created by the Maker/Trustor unless those terms are illegal or unconscionable.
- Funding – almost any type of assets may be used to fund a trust.
Along with understanding the elements of a trust, you should know that all trusts are divided into two basic categories – testamentary and inter vivos, or living trusts. A testamentary trust is one that only takes effect upon the death of the Maker whereas a living trust activates as soon as all elements of creation have been completed. Living trust are then further sub-divided into revocable and irrevocable living trusts. As the name simply, a revocable living trust is one that can be revoked or changed by the Maker whereas an irrevocable living trust cannot be changed or revoked without a court order in most cases.
Though once used almost exclusively by extremely wealthy families as a mechanism by which the family wealth was passed down tax- (at the time) while still maintaining a certain degree of control, trusts are now used regularly by the average estate planner. Moreover, trusts have evolved to the point where there is a specialized trust for almost any estate planning need, including, not limited to:
- Asset protection
- Incapacity planning
- Medicaid planning
- Tax avoidance
- Special needs planning
- Pet planning
One of the most sought after benefits of using any trust you create is that, unlike your Will, a trust agreement is not required to go through the probate process. This usually means your estate assets will be available to the intended beneficiaries much sooner and that the terms of your estate plan will be kept private, unlike your Will which is considered part of the public record once it has been submitted to the court.
If you have additional questions about creating a trust agreement, contact the experienced North Carolina estate planning attorneys at Clarity Legal Group® by calling (919) 484-0012 to schedule an appointment.