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What Is a Trust and How Does It Work?

March 22, 2022 •  Legacy Law LLC
Trusts are often associated with the rich. However, the uber-wealthy are not the only people who can benefit from using trusts. There is no minimum asset level or net worth required to set up a trust, and you can put any amount of money into a trust.

A trust is a legal entity, created to hold assets for a person referred to as a beneficiary. The person in charge of the trust is the trustee. The person who creates the trust is known as the grantor (or trustmaker, settlor, or trustor). How the trust is structured and what it does varies widely, as detailed in the aptly-named article “Trusts Explained” from U.S. News & World Report. Trusts are used in estate planning to reduce estate taxes, help avoid having certain assets go through probate, or assist in validating and settling an estate.

Simply put, trusts are used to transfer assets from one person to another person, or institution, such as a nonprofit or a bank. The grantor establishes the trust and funds it by retitling assets to be owned by the trust. The grantor also chooses one or more beneficiaries and a trustee or a group of trustees, who are in charge of managing the trust.

You might create a trust to benefit a charity and have it managed by a bank or another type of financial institution. If the trustee is an institution, it will name a trust administrator or trust officer, who is in charge of managing the trust.

Placing assets in a trust ensures they are managed as directed in the trust documents, even when you cannot manage them yourself. Assets in a trust do not go through probate, allowing heirs to access assets more quickly than if they were transferred using a last will.

Certain kinds of trusts, and there are many, can be used to remove assets from your estate to reduce estate taxes.

Revocable living trusts provide a lot of flexibility. The grantor may change the terms of the trust or even shut the trust down at any time. The grantor may also be a trustee, so as to maintain complete control of the trust during the lifetime of the grantor. A successor trustee is named to control the trust when the primary trustee dies or becomes incapacitated.

In exchange for this much control, the assets are still considered part of the grantor’s estate. To avoid this, use an irrevocable trust. This trust cannot be altered by the grantor once it’s established. The grantor may not change the terms of the trust or dissolve the trust. Assets are under control of the trustee only. Assets in an irrevocable trust are not considered part of an estate, not subject to estate taxes and the grantor does not have to pay taxes on income generated by the trust during their lifetime. Note: this description is “painting” with a broad brush as there are many legal and tax “moving parts,” when it comes to irrevocable trusts.

Wills and trusts are both used to direct how assets are transferred after death. Trusts can be used to manage assets on your behalf, if you become incapacitated as well as after your death. Trust documents do not become part of the public record, while wills do. Wills have to be validated by the court; trusts do not. Some people place most or all of their assets within a trust to keep their business private.

Trusts provide a great deal more control over your assets and maintain privacy for the family. You control how and when assets are distributed in the trust document. For instance, children can be given money over a controlled period of time, rather than all at once. You can also use trusts to pass assets along to a family member with special needs who is receiving government benefits using a special needs trust. Passing assets directly to such an individual could put all of their government support and programs at risk.

Speak with your estate planning attorney about trusts and how they may benefit you, your spouse and your family. They can provide you with even greater peace of mind than a will. Note: the above description of a trust is truly “painting with a broad brush,” since there are many legal and tax “moving parts” when it comes to irrevocable trusts.

Reference: U.S. News & World Report (Feb. 7, 2022) “Trusts Explained”

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December 22, 2021.
Bethany was professional, very knowledgeable, personable, and easy to work with. She made the daunting task of setting up a will easy and seamless.
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Bethany was great! She explained the details of probate and how it works in detail. Our purpose was to protect our children in the untimely event of both of us passing at the same time. The estate planning put our minds at ease. She encourages us to follow up with her periodically and make sure everything is still in order. This impressed us, she cares.
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Carey Larson
October 8, 2021.
Bethany was really helpful in getting our trust set in place; she answered all our questions thoroughly and we have peace of mind that our estate and affairs are in order. Highly recommend!
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I was pretty nervous/unsure about needing a will/ trust and decided to explore my options. I found an introductory video on-line from Legacy Law. From there I set up a meeting with Bethany and went in with a boatload of questions. My questions were answered patiently and with great expertise. I never felt pressured and came out feeling reassured and comfortable with my choices/decisions. This was all done professionally and in a very timely manner. To this day, if I have a question all I have to do is give Bethany or Brynn a call. It is without hesitation that I recommend Legacy Law and their services.
Patsy Christensen
August 31, 2021.
Thank you LegacyLaw Estate planning was a breeze with them .
Deborah Doak
August 21, 2021.
Bethany was great! Very professional and personal. She was always able and willing to answer our questions and come up with the best solution for our needs. I highly recommend her for estate planning and to navigate all the legal intricacies related to that.
Jeff Wilson
August 20, 2021.
Bethany was very professional, reasonably priced and very thorough when working with us on our trust. We highly recommend her for very individualized planning and attention to detail.
Robin Schamber
August 9, 2021.
Bethany was very professional and easy to work with. She answered all my questions and helped me put together a good living trust that I feel comfortable with. I would highly recommend her to anyone who is thinking about estate planning.
Steve Boyd
August 3, 2021.
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