Key Points:

1. Trusts are powerful tools for effective estate plans and given their versatility, can service a wide variety of needs.

2. A trust is a legal document that establishes a fiduciary arrangement between a grantor, the individual establishing the trust, and a trustee.

3. A trust document gives a grantor the flexibility to control, stipulate, and protect their estate assets.

As Ben Franklin famously once said: “Put not your trust in money, but put your money in trust.” Often times when most of us think of a trust document, we tend to associate them with wealthy individuals who use them to pass their wealth onto their children or grandchildren. However, this could not be further from the truth. Trusts are powerful tools for effective estate plans and given their versatility, can service a wide variety of needs.

Before we discuss the many uses of trusts, it is important for us to address the following questions: first, “What is a trust?” and second, “What are some benefits of having a trust?” Simply put, a trust is a legal document that establishes a fiduciary arrangement between a grantor, the individual establishing the trust, and a trustee. In this arrangement, the grantor transfers assets into the trust for the trustee to handle according to stipulations or rules set in the trust document. The trust document serves as a legal instrument giving the trustee the power to carry out the grantor’s wishes on behalf of the trust beneficiaries.

One of the unique benefits of having a trust is that since the trust owns the assets transferred into it and not the grantor, the trustee can administer and transfer those assets to trust beneficiaries without subjecting assets to probate court, avoiding the costs, time and general inconvenience associated with it. Additionally, this direct transfer keeps assets and grantor estates from being exposed to public records which the probate process mandates.

Another benefit to having a trust is that the document gives the grantor the ability to control their wealth and stipulate the terms and manner in which their assets are transferred or used. An example of this is a “Revocable Living Trust,” which is commonly set up so that the grantor maintains control of their assets while he or she is alive. When the grantor passes on, the trust then directs the trustee on how those assets are to be handled and/or transferred to the beneficiaries. Revocable trusts can be adjusted during the grantor’s lifetime but once the donor passes on, the revocable trusts become irrevocable trusts also known as testamentary, or permanent trusts, which cannot be changed upon the end of the grantor’s life.

Building on that benefit, trusts also give a grantor the ability to protect and ensure their assets impact their heirs the way they intend. We consider trusts as an essential building block in asset protection planning . Properly constructed trusts can serve to protect the grantor’s estate from creditor access or from beneficiaries themselves if needed. Often, financial irresponsibility on the part of beneficiaries can be mitigated by setting up the trust to pay for the beneficiaries’ health, maintenance, education and general well-being instead of giving them explicit ownership control of said assets. As a result, the trustee can ensure that the funds are handled with the utmost care. Typically what is known as an “Irrevocable Trust” is set up to handle these situations. Irrevocable trusts, once established, cannot be undone and the grantor will lose the ability to change the parameters within the document once it is enacted. Thus, it is important for the grantor to be committed to the plan they set forth within the trust document.

Trusts are powerful, versatile and extremely useful instruments in almost every effective estate plan. The flexibility they give the grantor to stipulate, control and protect their legacy are invaluable to many of our clients here at Capstone. If you have any questions or would like more information on whether a trust makes sense for your situation, please feel free to contact a qualified estate planning attorney or one of our Certified Financial Planner™ (CFP®) professionals.