What is Trusts Law?
Benefits and drawbacks when property is held for the benefit of another
on December 15, 2016
Updated on October 18, 2022
An estate plan helps you be confident your family will be taken care of after you die. One element of an estate plan is a trust—either one that transfers property while you’re alive or one that comes into existence after you pass. A trust gives you reassurance that property will be managed according to your wishes, and it can help your loved ones avoid the lengthy and costly court proceedings that can accompany the inheritance process.
This overview will help you understand the basics of creating a trust as well the benefits and drawbacks to this form of estate planning. You can use this information to help you evaluate your options as you consider your assets and how you would like them to be managed when you die.
A trust exists where property is held by one party for the benefit of another. These relationships typically include three people: the person making the grant of property (trustor), the person holding the property (trustee) and the person benefitting from the trust (beneficiary).
A trust can be a standalone grant of property or money that becomes effective immediately. This is called a living trust. A trust can be included in a will as a testamentary trust that will be created upon the death of the testator.
Creating a Trust
To create a trust, you will transfer legal ownership of property to a person or institution who will manage the property for the benefit of a person of your choosing. You can transfer the property to an institution like a bank, a family member or yourself. The party is then called the trustee.
This transfer creates a fiduciary relationship, which requires the trustee to act in the best interests of the beneficiary. This responsibility exists regardless of whether you make yourself or a third party the trustee, and the beneficiary can hold the trustee legally responsible if there are damages to their interest.
You will also need to decide whether you want to create a testamentary trust or a living trust. A testamentary trust is a trust document usually included in a will and doesn’t come into existence until your death. At that time, the trustee will follow the instructions in your will. You can create conditions that must be met before the beneficiary receives the benefits of the trusts or a schedule for payment of benefits. A living trust is effective immediately, and it may continue after your death. You can usually specify whether it is a revocable, which allows you as the testator to change the terms or revoke it at any time or an irrevocable trust, which doesn’t allow changes.
Benefits and Drawbacks
Living trusts may be able to help your beneficiaries avoid probate, which can help them save time and money because they will not have to go to court for the property to be distributed. This is because the trust assets were transferred when you were still alive and do not count as your remaining assets when you die.
Trusts, however, can be difficult to set up. Not only do they generally cost more money to establish than wills do, but they are also easy to get wrong. If you do not properly transfer title of your assets during your life, the property will still need to go through probate. This can cost your surviving family members the time and expense you were hoping they would avoid through use of a trust.
Below are some common questions you might want to consider when meeting with an attorney for the first time.
- Who owns the property in a trust?
- How does a trust work?
- Can a trustee withdraw money from a trust?
- What are the pros and cons of a trust?
- How do I create a trust?
Finding the Right Attorney for Your Needs
It is important to approach the right type of attorney—someone who can help you through your entire case. To do so, you can visit the Super Lawyers directory, and use the search box to find a lawyer based on your legal issue or location.
Why Should I Talk to a Lawyer?
An experienced lawyer can help you create an estate plan in line with state law so it will be able to stand up to any potential legal scrutiny and successfully avoid the probate process. Your lawyer will help you evaluate what kind of trust is best for you and your assets. Your lawyer will also be able to help your trustee understand their role, and they can provide relevant legal advice so that your wishes are honored. You can even appoint your lawyer as your trustee.
A lawyer will be able to anticipate potential problems with your estate plan and advise you on how to approach them. Your lawyer will also keep track of deadlines and file all the paperwork with the necessary courts and agencies, giving you one less thing to worry about.