What is a Trust?
The simplest definition of a trust is a legal agreement between at least two parties: the trust maker, and the trustee. The person who creates the trust is known as the trust maker, the trustor, the grantor or the settlor. After creating the trust, the trust maker “funds” the trust by transferring personal assets to the trust. The most common types of trusts used in estate planning are revocable living trusts and irrevocable trusts, although there are additional types as well.
The trustee manages the trust assets and carries out the wishes of the trustor. The beneficiaries are those named by the trust maker to inherit specific assets. Although some people do involve their beneficiaries in the creation of a trust, most do not.
Hodgkins Law handles only estate planning, therefore those who are considering a trust as a part of an estate plan could greatly benefit from speaking to a Hodgkins Law attorney. We create customized estate plans, using resources which allow us to ensure our clients’ trust documents are as unique as the clients themselves.
What are the Differences Between a Trust and a Will?
While wills and trusts are both very useful estate planning tools, they are very different documents with very different goals. The primary difference between a will and a trust is that a will goes into effect only upon the death of the person who made the will. A trust goes into effect as soon as it is created. A will essentially offers instructions for the disbursement of an estate following the death of the will maker. Typically, there is a personal representative named by the will maker who will ensure the wishes of the deceased are properly carried out.
While a will covers any asset owned by the will maker when he or she dies, it does not cover joint tenancy or trust properties. Wills must pass through probate, which can be both lengthy and expensive. Beneficiaries must wait until the will has been probated to receive their inheritance.
Probate is public, meaning anyone who cares to do so can find out what was left in an estate—and who those assets will go to. A trust is not required to go through probate. This means it is private and beneficiaries receive their inheritance much more quickly. Those with minor children who believe a trust is the best estate planning tool will also need a will to name a guardian for the minor children.
What Types of Trusts are There?
Revocable living trusts and irrevocable trusts are the primary types of estate planning trusts. A Revocable living trust is one which can be changed at any time during the trust maker’s life. It is called “living,” because it is set up while the trust maker is alive. An irrevocable trust cannot be changed once it is completed, yet an irrevocable trust may have certain tax advantages and asset protections which a revocable trust does not.
A testamentary trust—sometimes called a will trust—is an agreement made for the benefit of a beneficiary after the death of the trustor. There is typically an executor who manages the testamentary trust (which is irrevocable, meaning it cannot be altered or changed, once in place). A credit shelter trust—also known as a bypass trust—allows the trustor to give assets to family members or a spouse in an amount up to the estate tax exemption, then the remainder of the estate can go to those family members or a spouse free of estate tax once the trustor dies.
An insurance trust lets a trustor combine his or her life insurance policy within a trust, ensuring it is free from taxation on the state. When an insurance trust is used, the life insurance policy may not be borrowed against, and it is irrevocable. The life insurance proceeds can, however, help pay for post-death expenses against the estate. Finally, a charitable trust makes a non-profit organization the beneficiary, thus avoiding gift taxes and greatly reducing estate taxes.
What are the Benefits of a Trust?
Living trusts, both revocable and irrevocable, have a number of benefits, as a top Maine estate planning attorney could tell you. With a living trust, probate may be avoided entirely. A will must always be probated—a process which can be expensive and time-consuming. While it can take months—or even years—for a will to go through probate, leaving beneficiaries to wait for their inheritance, with a living trust the successor trustee pays the debts and distributes the assets almost immediately.
While a living trust has more upfront costs than a will, the living trust could save a significant amount of money down the line, after the trustor has passed. If there is likely to be a challenge to the asset distribution, a living trust is much more likely to hold up if someone contests the estate plan. Additionally, a living trust is likely to be written as to allow someone to automatically take over in the event the trustor becomes ill or incapacitated.
How We Can Help
Hodgkins Law cares deeply about clients and their estate planning concerns. We understand that estate planning can be an emotional issue, therefore our atmosphere is welcoming and warm. We want every client to feel comfortable with Hodgkins Law, and to trust that the final estate plan will be the very best one possible for each unique situation. At Hodgkins Law we oversee every step of the estate planning process, and will fully explain anything which is not completely understood. Whether you live in Brunswick, Bath, Wiscasset, Woolwich, Topsham, Freeport, Durham, Yarmouth, Falmouth or other areas in Southern or Mid-Coast Maine, consider Hodgkins Law for all your estate planning needs and contact us today.