A trust is an important estate planning tool that can be used to determine how a person's property is to be managed or distributed. It is called a living trust when it is established during the lifetime of the "settlor." The settler is the person who creates the trust and normally the person who funds the trust.
A trust may have more than one settlor. A trust is deemed revocable when the settlor reserves the right to amend or revoke the trust during his or her lifetime.
A trust requires a trustee to hold title to the trust property and manage it. The settlor often serves as trustee during his or her lifetime.
A trust also requires a beneficiary, who is the person or entity to receive income or principal from the trust. The settlor may be the beneficiary during his or her lifetime and may designate a family member, charity or anyone else as a beneficiary upon death.
Advantages of a Revocable Living Trust
Advantages to living trusts include:
- They allow assets to be passed to beneficiaries without going through probate, which can be an expensive and time-consuming process.
- They safeguard financial privacy, by allowing assets to pass privately rather than through probate court, where the records are a matter of public record.
- Assets of the trust may be sold without approval of the probate court.
- They allow the settlor to act as trustee during his or her lifetime, thus maintaining control over the assets of the trust.
- They provide for the regulation and use of assets if the settlor becomes incapacitated or disabled.
Revocable living trusts are fluid and generally may be changed or revoked during the lifetime of the settlor, based on any future change of circumstances.
Funding the Trust
Funding the trust is necessary for a valid revocable living trust and requires the property of the grantors to be titled in the trust. Most property should be transferred into the trust, except:
- Retirement accounts: While it is advisable in certain circumstances to designate the trust as the beneficiary of these accounts, funding a retirement account into the trust would trigger adverse tax consequences.
- Custodial accounts: Generally, accounts involving UTMA or UGMA transfers to minors should not be funded into the trust.
- Vehicles: Difficulties in funding a car into the trust may make it a better option to keep the car titled in the individual's name instead.
There are many advantages to a revocable living trust, but it is not the same thing as a will and may not be an appropriate substitute for a will. Consult with an experienced attorney to determine whether a revocable living trust can help accomplish your individual estate planning goals.
From our law offices in Hackensack and Manhattan, Kirsch Gartenberg Howard LLP has served individuals and businesses across northern New Jersey, including Bergen County, Essex County, Union County, Middlesex County and Passaic County, and the five boroughs of New York City since 1984.
