What Is A Trust?
A trust is actually more like a corporation than anything else. It’s a separate legal entity that can own the assets of a person during their lifetime and provide for management of those assets if that person becomes incapacitated or after their death. Because it’s a separate entity, the people who are named to manage those assets don’t have to go to court and get permission when the time comes.
What Are The Advantages And Disadvantages That Are Entailed In Setting Up A Trust?
There are two main benefits of a trust. For the type of trust that we use for estate planning, first, during the person’s lifetime, if they become incapacitated, someone else can step in for them and manage their assets, pay their bills, liquidate assets and re-invest them without having to get permission from a court. Second, after the person’s death, the successor trustee can distribute the assets according to the person’s instructions, which operates much like a will except the trustee doesn’t have to go to court to get permission to do so. So, the trust avoids both conservatorship during one’s lifetime and probate after death. There are not really any disadvantages to the trust except that it takes some time and effort to get it set up and to transfer assets into it so that the trust owns the assets.
What Happens If Someone Dies Without Setting Up A Trust?
If you don’t have a trust set up and you become incapacitated, someone’s going to have to go to court to get named as your conservator, and that would then allow that person to manage your finances for you. A conservatorship is very costly and time-consuming, and has ongoing requirements for the rest of the person’s life to report to the court and do accountings. After death, the disadvantage then is to the beneficiaries because they have to go through the probate process of having the will admitted to court if there is a will and having the court oversee payment of creditors and distribution of the remaining assets.
If Someone Sets Up A Living Trust, Does It Still Take Time To Process The Estate After Death?
It does. It still is a process; it’s just that the process is less difficult than without a trust. So all debts still have to be paid, assets need to be liquidated, notices have to be sent to different government agencies, beneficiaries and family members, accounting needs to be done, tax returns filed and distributions made. So there is some work to do; it’s just that it’s not done through the court system so it takes less time and expense.
Can I Protect My Heir’s Inheritance Through A Trust In The Instance Of a Divorce?
Yes. There are actually a couple of things that can be done. One is automatic, at least in California. When the child inherits, that inheritance is the child’s separate property. If the child keeps it separate and doesn’t put the spouse’s name on it, the spouse never has any rights to it. So that’s the easiest way. But a lot of times, people are concerned that their child won’t do that; their child could put the spouse’s name on it and then would lose it. So, you could take that choice out of the child’s hands by not distributing it outright to that child. You just have that child’s share remain in trust for them so that they get the benefit of those assets, they get the income from those assets and maybe even some principal, but it never transfers outright to them. Since it never transfers outright to the child, they can never transfer that interest to their spouse.
Can Someone Set Up More Than One Trust?
Yes. It’s not terribly common, but it happens from time to time. For example, a married couple has some joint property, and they want a trust for it, but one or both of the spouses also has separate property that they want to protect and keep separate. We would do a separate trust for that spouse also so they would have both the marital trust and the separate trust. It’s not absolutely necessary; in theory, a joint trust and a marital trust can also hold separate property, but it’s not as clear, and so sometimes, just to make it absolutely clear that those assets are separate, they would be placed in a separate trust.
How Do You Advise Clients Who Are Nervous About Losing Control Of Their Assets To A Trust?
They actually do still own their assets; they just own them through the vehicle of the trust. So if we go back to that comparison of the trust being like a corporation, they become the shareholders of this corporation. They own it but secondarily. So because they have full control over the trust and the trust owns the assets, they still control the assets 100%. They could sell the assets, borrow against them, use the assets as collateral or gift them; there is literally no restriction for them once the assets are in the trust.
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