At eLegacy, we often recommend creating Trusts as part of a comprehensive Estate Plan. Many people have heard of Trusts, but too often, they think that Trusts are very complicated. One common concern people have when we recommend establishing a Trust is whether they will lose control of the assets that they place into a Trust. The worry is that if something unexpected happens or they change their minds later in life, they won’t be able to access Trust assets to serve some other purpose.
The good news is that this worry is largely unfounded. Just because you create a Trust and place assets into it does not necessarily mean that you will lose control over those assets. The level of control you retain will depend on the terms you establish for the operation of the Trust. If you are concerned about whether your financial goals will change, create a revocable Trust. You can also retain control as a Trustee or co-Trustee.
A Revocable Trust Can Be Completely Dissolved
A Trust is a separate legal entity. To create a Trust, you need a Grantor, a Trustee (or Trustees), and a Beneficiary (or Beneficiaries). The person who creates a Trust is the Grantor, and the Grantor decides what assets to put into the Trust. A Trustee is an individual who administers the Trust according to its terms, and the Grantor decides who can serve as a Trustee. A Beneficiary is a person whom the Trust is intended to benefit, and the Grantor decides who is a Beneficiary. When you are the Grantor, you may serve in all of those capacities, although you cannot simultaneously be the sole Grantor, sole Trustee, and sole Beneficiary; you must have at least one more person join you as Trustee or Beneficiary.
When you make a revocable Trust, you have the right to dissolve it at any time and for any reason. If you do, the assets that you have deposited into the Trust will revert to being your private property once again. Your revocable Trust only becomes irrevocable when you pass away.
Why Would I Create a Revocable Trust?
So you may now be wondering: what is the purpose of creating a Trust if I can dissolve it whenever I want? There are several reasons.
A Trust can be an ideal instrument for protecting and managing your assets. You can create Trusts to serve a wide variety of purposes. Some people establish charitable Trusts to benefit some organization or cause they support. Others may establish a Trust to support themselves and their spouses during their lifetimes and to distribute their estate. You can create a Trust to provide educational costs for your children or grandchildren or to support a disabled child during the child’s lifetime. A Trust is a legal vehicle you create to set aside funds or other assets for a specific purpose. The assets that are part of the Trust cannot be used for any other purpose so long as the Trust owns them.
People often use Trusts to protect their assets as they age. As you get older, you may find that managing your assets and investments is burdensome or confusing. You may lose the capacity to manage your assets wisely or make prudent decisions due to dementia or some other incapacity. Setting up a Trust early and naming responsible co-Trustees or successor Trustees to manage your assets for your benefit can relieve you of the worry that your assets may get squandered, wasted, or appropriated. Your Trustees have a fiduciary duty to ensure that the Trust’s assets are invested and used responsibly for the purposes you establish. If they fail in this duty, Trustees can be held liable for breaching their duty. In other words, Trusts create a legal framework in which you can be sure that your money will be spent as you intend, even when you are personally incapable of making sure that that happens.
Another significant benefit of a Trust is that you can arrange to pass your assets down to your heirs through a Trust instead of through a Will. Trust assets are not included in your estate and are not part of the probate process. This means that your Trustee or successor Trustee can distribute the Trust’s assets to your heirs without the lengthy and sometimes costly public probate process.
Your Trust will include terms that direct your successor Trustee on how you want to distribute the assets once the Trust is dissolved. In some cases, Trust may outlive you for some period of time. For example, you and your spouse can create a Trust that provides support for both of you during your lifetimes such that, so long as either of you is alive, the Trust assets will be used for this purpose and only get distributed after you both pass away. You can arrange for a Trust to continue until your children reach a certain age.
In sum, the benefit of creating a revocable Trust is that it creates an existing instrument that manages your funds for present and future purposes that you designate and also establishes a mechanism for distributing assets after you pass away.
As long as you are alive, however, you have control over your assets, including the ability to dissolve your Trust if it no longer serves your purposes.
To find out more about Trusts or to learn more about how eLegacy can help you put together an Estate Plan, contact eLegacy today.