Trusts are valuable estate planning tools that offer numerous potential benefits, such as avoiding probate, reducing taxes, protecting assets, and ensuring that beneficiaries can inherit assets with minimal complications. The three main types of trusts include living trusts, irrevocable trusts, and testamentary trusts. The right trust or combination of trusts for your estate plan will depend on your needs, wishes, and financial situation. At Von Rock Law, our dedicated San Francisco estate planning lawyers help our clients explore the various types of trusts and other estate planning measures to achieve their unique goals. Contact us today at (866) 720-0195 to learn which kind of trust best suits you.
A testamentary trust is a legal entity created from the directives enclosed within a person’s Last Will and Testament. This construct creates a fiduciary bond that permits a third-party trustee to administer assets for the benefit of the trust’s beneficiaries. Such an arrangement empowers the trustee to disseminate the decedent’s assets as outlined in the will, or in the trust document if the will specifies that the trust instrument is to be referenced separately. If an individual wishes to establish multiple testamentary trusts in their single will, they might consider identifying the trust instruments as separate documents. In either case, individuals considering a testamentary trust should be aware that this type of trust only comes into existence posthumously.
The primary purpose of a testamentary trust is to administer the deceased’s assets on behalf of the named beneficiaries. Its utility also extends to minimizing estate tax liabilities and ensuring proficient handling of the deceased’s assets. The stipulations of a testamentary trust can be configured to release the deceased’s assets to the beneficiaries only under specific circumstances. In one common scenario, the trust’s specifications might allow a deceased’s child to draw upon the assets for educational expenses until reaching the age of 25, upon which the remaining balance would be dispensed. On the other hand, a testamentary trust can also be crafted to manage the philanthropic allocation of assets in alignment with the deceased’s desires, giving individuals the opportunity to leave behind a legacy not just of wealth, but of support for the causes that mattered most to them in life.
Also known as a revocable trust, a living trust is a type of trust established during an individual’s lifetime. Upon the trust maker’s death, the property contained within this trust is transferred to the designated beneficiaries. An alternative method of estate management would be the use of a will; however, transferring assets via a will necessitates the potentially arduous probate process, wherein a court supervises the allocation of property to beneficiaries.
Many people opt to establish a revocable living trust as part of their overall estate strategy. The appeal of such trusts lies in their flexibility: they can be altered or dissolved at will. In most cases, the person who sets up the trust also acts as its trustee, thereby maintaining control over the trust and its assets for the duration of their lifetime. As part of the trust agreement, a successor trustee is appointed, who takes on the responsibility of managing and distributing the trust after the original trustee’s death. For couples who set up a joint trust, control of the trust is transferred to the successor trustee only after both spouses have passed away.
On the other end of the spectrum are irrevocable trusts. Trusts of this type, once signed, cannot be altered or terminated. Despite their rigidity, irrevocable trusts serve specific strategic purposes, such as tax reduction. However, to reap these benefits, the trust maker must forgo ownership and control of the trust’s assets. You can learn more about irrevocable trusts and other types of trusts by contacting the experienced San Francisco estate planning lawyers at Von Rock Law.
An irrevocable trust serves to transition assets from the grantor to the beneficiary. This process effectively diminishes the value of the grantor’s estate in relation to estate taxes, and simultaneously shields the assets from potential creditors. The primary motivations for establishing irrevocable trusts often include the mitigation of estate taxes, qualification for government benefits, and safeguarding of assets. Those in professions that are more susceptible to legal proceedings, such as doctors or lawyers, often find irrevocable trusts particularly beneficial. Once assets are reassigned to such a trust, ownership is held by the trust for the beneficiaries benefit. This means the assets are protected from legal judgments and creditors as the trust is insulated from involvement in any litigation.
Updates and Changes to Trusts
Amendments, modifications, or terminations to irrevocable trusts are not permitted without consent from the beneficiary of the grantor or through a court order. These restrictions also apply to a testamentary trust, once active, with the logic being that the trust is activated only by the execution of the decedent’s will, and thus only once the grantor is no longer alive to make or approve any changes. After drafting the will and trust instrument and prior to death, however, the terms of a testamentary trust are treated more like those of a revocable trust, in which the grantor retains the power to alter the trust, albeit at the expense of certain advantages like protection from creditors.
The specifics of these rules may vary across different states. According to the California Legislature, in most cases, an irrevocable trust may only be modified or terminated if all beneficiaries give their consent. Once the ownership of all assets has been transferred to the trust, the grantor, in a legal sense, relinquishes every right of ownership tied to the assets and the trust.
Depending on your financial circumstances, setting up a trust may be a wise estate planning move. Along with a self-assessment of your financial situation, consider speaking with an experienced estate planning lawyer who can guide you through the process. Estate planning involves critical legal, financial, and personal decisions. If the associated documents are improperly prepared or executed, they could end up being void or faulty, leading to lasting repercussions for your beneficiaries and the impact of your estate plan.
According to the Attorney General of California, some entities are operating under the guise of “living trust mills,” ready to peddle an unneeded living trust or exploit your financial information to sell individuals products that are less secure compared to their existing investments. These scams often prey on seniors, enticing them with complimentary seminars on living trusts or other estate planning topics. This is why, when forming a trust, it is best to do so with guidance from a local estate planning lawyer with experience and a strong track record of looking out for the best interests of their clients.
If you are in the estate planning process, you may feel overwhelmed by the different types of trusts and unsure which one best suits your family or philanthropic goals. At Von Rock Law, our trusted San Francisco estate planning lawyers can evaluate your financial situation and help you craft an estate plan that demonstrates your values and meets your unique needs and those of your family and beneficiaries. Contact us today at (866) 720-0195 to learn more.