Trusts are agreements created on a foundation of trust and confidence between the trustee and the grantor, also referred to as a trustor or settlor. The grantor creates the trust and the trust agreement, or trust document, gives a trustee the authority to manage the trust assets and distribute them to beneficiaries in accordance with the terms of the trust document.
A trust must be funded with the property you intend to be controlled by the trust terms. Assets are funded into a trust by retitling the asset into the name of the trust, or by naming the trustee of the trust a pay on death beneficiary. Your trustee can manage all of the property titled in the name of the trust when you become mentally incapacitated or die, and all of the assets payable to the trustee of the trust at your death. You have to do more than just sign the trust agreement. How you fund your trust will depend on the nature of your assets. Not every asset is funded into a trust the same way.
A revocable trust allows the grantor to modify the terms of the trust even after it has been executed. As the name implies, a revocable trust can be revoked or amended at any time before the death or incapacity of the grantor. An irrevocable trust is different because it cannot be modified once it has been executed, except in very limited circumstances.
An irrevocable trust can protect assets from the creditors of the grantor because the grantor retains no control over the property. Since the terms of the trust cannot be changed or revoked, you cannot get the property back making the assets more difficult to be attached or seized to satisfy legal claims or judgements against you.
A living trust becomes effective during your lifetime. At your death, the trustee transfers trust property to your named beneficiaries. Living trusts are typically used in combination with wills in comprehensive estate planning. While irrevocable trusts are excellent asset protection strategies, funded revocable living trusts avoid the time and expense of the probate process and therefore are more difficult to contest.
Although a will and a living trust both provide for the distribution of assets at your death, they are not the same type of estate planning instrument. A will must be adjudicated in a court process called probate to govern the distribution of your estate assets to your beneficiaries after your death. The terms of the Will cannot direct assets that have a named pay on death beneficiary or otherwise pays by the terms of a financial contract (for example, a life insurance policy which names a beneficiary, will pay to the named beneficiary in the contract rather than to the beneficiaries of the Will. A living trust, holds assets for your benefit during your lifetime, and then allows your trustee to transfer them to your beneficiaries named in the trust agreement after your death without a court order.
A spendthrift trust provides additional control over trust property by limiting the beneficiary’s access to the trust principal. The restrictions generally intend to protect the trust property from beneficiaries who might squander that property if received outright and free of trustee supervision. A spendthrift trust aims to protect the assets from the beneficiary’s creditors.
A beneficiary’s rights are determined by the terms of the trust document, as well as the trust laws in your state. Nevertheless, there are several common rights a beneficiary of an irrevocable trust can count on. Current beneficiaries have the right to payment of distributions as set out in the trust document. They also have a right to receive sufficient information about the trust and its administration to be able to enforce their rights. Current and remainder beneficiaries also have a right to petition the court for the removal of the trustee if there is a concern that the trustee is not acting in the best interest of the beneficiaries.