While many people consider a “simple will” an important part of taking care of their family after their death, they forget to consider including a versatile option: Trusts.
Trusts come into being through a person’s will or a separate legal document establishing that trust. A person who creates a trust is called a “grantor” or “donor.” When a trust is created, the grantor chooses a trustee to manage the assets, or the “principal,” and then an income is paid out of that trust to those the grantor chooses to support, known as the “beneficiaries.” Almost anyone can be the beneficiary to a trust.
A trust can be either revocable or irrevocable. A revocable trust agreement allows the grantor to amend or cancel the trust at any time, in case he or she has a change of heart. On the other hand, if the trust arrangement is put in a will, it will become irrevocable upon the grantor’s death.
There are several different types of trusts. Each type of trust has a specific purpose and will help you accomplish your estate planning goals. Two common testamentary trusts (trusts created in a will) are family trusts and QTIP trusts.
With a family trust the grantor creates a trust in his or her will, known as a testamentary trust, for the benefit of that person’s spouse, children, or other family members. Often, a husband and wife set up a trust in their wills for the surviving spouse’s benefit. Each states that after his or her death, the trust shall continue for the support of their children until the children attain a certain age. Then, the trustee turns over the principal to the children.
A Qualified Terminable Interest Property (QTIP) Trust is similar to the family trust, but places more restrictions on the surviving spouse. In this trust, although the surviving spouse receives lifetime income from the trust, he or she may not have the power to determine the beneficiary of the remaining trust assets upon the survivor’s death. This is to allow for more control in a second marriage situation where the goals are to provide maximum financial support for the surviving spouse while still passing the trust principal to the children of the prior marriage.
A trust can be the ideal solution to satisfy a person and his or her family’s financial needs during and after their lifetime. A trust is a powerful tool that assures a person that his or her wishes will be fulfilled. To determine whether a trust would be the appropriate tool to fulfill your estate planning goals, consult with an estate planning lawyer to discuss the specifics of your situation.