What is a trust? A trust is a legal arrangement that involves three people: the trust-maker, the trustee, and the beneficiaries. The trust-maker, often known as the grantor or settlor, creates the trust agreement. The trustee holds and controls the assets. The beneficiaries receive the property that is titled in the name of the trust.
Trusts are flexible documents that a skilled and experienced Ohio probate and estate planning lawyer can create and modify to specify how and when assets will pass to the trust beneficiaries. When a trust is created, the trust-maker transfers ownership of certain assets to the trust, which is managed by the trustee on behalf of the beneficiaries. In some cases, the trust-maker and the trustee are the same person.
The primary benefit of a trust is that it allows a person to quickly transfer assets at the time of their death or another event they specify, without probate court approval. People may choose a trust to save time, court costs and, in some cases, estate taxes.
Another benefit of a trust is privacy. Unlike assets that transfer through probate court, which are public record, a trust allows the trust-maker to transfer assets without probate court oversight. Because the probate court is not involved, the transfer of assets remains private.
A trust also allows the trust-maker to identify the terms of a wealth transfer, giving the trust-maker greater control over their legacy by specifying when and to whom trust distributions are made.
Living Trust Versus Testamentary Trust
While there are numerous types of trusts, a fundamental distinction is whether the trust is a living trust, or a testamentary trust.
A living trust, or inter-vivos trust goes into effect during the trust-maker’s lifetime. A testamentary trust, by contrast, does not go into effect until after the trust-maker has died, and is formed when the executor’s Last Will and Testament names the trust as a beneficiary. Estate assets are transferred to the trust at the time of the trust-makers death.
Revocable Trusts Versus Irrevocable Trusts
A second basic difference between trusts is whether the trust is revocable or irrevocable.
A revocable trust allows the trust-maker to retain control over the trust assets during their lifetime, and often names a successor trustee who manages trust assets upon the death of the trust-maker. The trust-maker can also appoint a successor trustee to take over if the trust-maker becomes incapacitated. This avoids the need to have the court name a conservator or have a guardian take over. The trust-maker is free to change the terms of the trust at any time, as he or she chooses, or even dissolve the trust.
A revocable trust allows assets to pass outside of probate, but allows the trust maker to keep control of the assets during their lifetime. While revocable trusts are often used to avoid probate, they are still subject to estate taxes.
An irrevocable trust allows the trust-maker to transfer assets out of the trust-maker’s name, leaving a legacy for the next generation. Placing assets in an irrevocable trust reduces the value of the trust-maker’s estate, which reduces the amount of estate tax assessed. Usually, an irrevocable trust cannot be changed once it is made.
While there are many benefits to creating a trust, they are not for everyone. Creating a trust is more expensive than preparing a Last Will and Testament. Often, a trust agreement only makes sense if the trust-maker has a substantial amount of assets to transfer into the trust.
There are also special circumstances where a trust might be beneficial, like if a family member is disabled, when the trust-maker is concerned that an heir might squander money, if the trust-maker wants to transfer a substantial amount of money to a charity, or to make certain that assets are used to care for the trust-maker if he or she is unable to care for themselves.
If you have questions about Ohio trust agreements, or want to know if a trust is right for you, contact Wolfe Legal Services today. I work with people throughout greater Columbus, including Dublin, Bexley, Upper Arlington, Marysville, Hilliard, Delaware, and Newark, and throughout Franklin County, Delaware County, Union County, and Licking County. Call (614) 263-5297 any time or complete our online form.