Before I became a lawyer, I had no what a trust was. I had heard about “trust fund” kids on TV though, so I knew they were something that rich people had.
After going through three years of law school and practicing law for over sixteen years, I can tell you that trusts are not just for rich people. There are honest to goodness reasons why most everybody can benefit from having a trust.
A revocable trust, or “living” trust, is one of the most common estate planning tools used today. Just like a will, a trust legally documents how you would like your assets distributed after death. When you set up a living trust, you are what is called the “grantor” or “settlor” of the trust. You also appoint a “trustee” in your trust document, and it is this person’s job to manage the assets that you transfer into the trust. Finally, the trust designates one or more “beneficiaries,” and these are people for whose benefit the trustee manages the trust assets.
Typically, when people first establish a living trust, they name themselves to be both the trustee and the settlor. Thereafter, they transfer the title of their assets from themselves, individually, to the trust. The result is that there is no appreciate difference in how you may use and enjoy your assets.
In your trust agreement, you will also designate “successor” trustees and beneficiaries, and this is where your estate planning goals come into play. The successor trustee that you nominate will fill a similar function as the executor of your estate if you die leaving only a will. And the successor beneficiaries are essentially your legatees, or heirs, who will receive your assets after you have passed.
Back in the day, trusts were the primary vehicle for people to avoid estate taxes. Today, since the amount of the estate tax exemption is so high ($11.58M federal and $4M in Illinois), tax planning is less of a concern for most people. However, there are still important reasons why a trust may be right for you.
First, a trust is flexible. When you execute a will, there are certain legal formalities that must be followed. However, you can amend a trust very easily simply by signing a piece of paper. No witnesses are required. For instance, if you acquired a piece of art after you executed your trust, and you want to leave it to a friend of yours whom you did not name as a beneficiary, you do not need to go through the hassle of amending your trust agreement. If you want to substitute the person you named as successor beneficiary, you can do that too. Once you create a living trust, you can change anything about it easily from the comfort of your own home.
Second, you are able to exert more control over your assets with a trust. You can even set up sub-trusts (trusts within a trust) to ensure that your assets are managed precisely how you want them to be. For example, if you have children, and one child has proven himself to be financially irresponsible, you can leave his share of your trust to the trustee, and set out an annual allowance for the child. You can also set up certain benchmarks for when a beneficiary’s trust share will be distributed (e.g., upon graduating from college or attaining the age of 30).
Finally, having a trust avoids probate. (What is probate? Click HERE). If you die leaving more than $100,000 in Illinois, a probate estate will need to be opened in court (whether or not you have a will). This can be an expensive and time-consuming process, and more importantly can be an extremely difficult process for your grieving loved ones. The entire process usually takes up to nine months, and often longer because creditors (both known and unknown) must be afforded a chance to make a claim against your estate. By having a trust and ensuring that your assets are transferred into it, probate can be avoided. Your successor trustee can simply carry out your instructions as documented in your trust immediately.
Avoiding probate is especially important if you own a vacation home or second home out of state. If you are an Illinois resident and die owning real estate in other states, not only will a probate estate need to be established here in Illinois, but “ancillary” probate proceedings will be required in the states where the other property is located. This can all be avoided by simply establishing a living trust.
If you are interested in learning more about setting up a living trust, please fill out the form on the right or contact Hess Law Firm at firstname.lastname@example.org.