Trusts

A trust is a legal entity created by a grantor that allows a trustee to hold, administer, and distribute assets for the benefit of designated beneficiaries according to the terms of the trust agreement. Trusts used in estate planning can be classified as inter vivos or testamentary. An inter vivos trust becomes operative during the grantor’s life while a testamentary trust takes effect on the death of the grantor. Inter vivos trusts can be either revocable or irrevocable. A revocable trust is a trust where the grantor reserves the right to modify or revoke the trust. An irrevocable trust may not be revoked after its creation. A testamentary trust is created within a will and does not take effect until the death of the grantor.

Trusts are commonly used tools in estate planning for reasons such as avoiding probate, reducing inheritance and estate tax, providing for spouses, children and disabled persons and making charitable gifts. Some examples of these trusts are listed below:

Living Trust

A Living Trust is a revocable inter vivos trust which has become very popular in recent years as a tool to avoid probate. With a Living Trust the grantor transfers his assets into the trust where he is also the trustee. Since the grantor is also the trustee he holds, buys and sells his property in the name of the trust. And, since the trust is revocable, the grantor can always amend the trust to change how the assets are distributed at his death, just like with a will. At the grantor’s death the trust becomes irrevocable and the assets are distributed according to the trust agreement. The grantor still needs a will to take care of any assets that were not included in the trust.

Testamentary Trusts

Testamentary trusts are created within a will for several different reasons. You might use a Credit Shelter Trust or Family Trust to reduce estate tax by funding the trust with an amount up to the estate tax exemption. You might use a Marital Trust to provide for your surviving spouse with the remainder going to your surviving children. You might setup trusts for your minor children to provide for their health, education and welfare until they become adults and can manage the assets responsibly. You might setup a special needs trust for a disabled child. There are many different reasons to create a trust in your will for a beneficiary rather than giving the assets directly to the beneficiary.

Irrevocable Life Insurance Trust

Proceeds from life insurance policies that you own at the time of your death are generally included in the value of your estate for estate tax purposes. An Irrevocable Life Insurance Trust is designed to hold and own your life insurance policies. At your death the proceeds of the policies cannot be included in your taxable estate because you no longer own them. And if the proceeds are held in the trust for the benefit of your spouse rather than going directly to your spouse, they will not be included in your spouses’ taxable estate either.

Charitable Trusts

A charitable trust is a type of trust that has one or more charities as beneficiaries. Charitable trusts provide income tax and estate tax benefits to the grantor depending upon the type of charitable trust established.

If you would like more information on trusts call our Tennessee probate attorneys today at (615) 829-8259 to discuss using trusts as part of your estate plan.