Senior Resources » Trusts in Estate Planning: 6 Essential Things You Need to Know

Trusts in Estate Planning: 6 Essential Things You Need to Know

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Did you know that trusts can play a fundamental role in estate planning? Not only can they help you safeguard your assets, but they can also help you manage distributions more effectively and preserve wealth for future generations. Moreover, certain types of trusts offer a level of flexibility unparalleled by other estate planning tools. But why else should you consider establishing a trust? Are they a good option for you and your estate? Here are 6 essential things you should know!


Trusts: What They Are and How They Can Benefit You

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Let’s start with the basics! Trusts are legal arrangements in which one party (the trustor or settlor) transfers assets to another party (the trustee) to hold and manage for the benefit of a third party (the beneficiary). Trusts are established through a written document known as a trust agreement or trust deed. This document outlines the terms and conditions governing the trust.

Trusts can be classified into two main categories:

  1. Living Trusts (Inter Vivos Trusts): These trusts are created during the trustor’s lifetime and can be either revocable or irrevocable. Revocable living trusts allow the trustor to retain control over the trust assets and make changes to the trust terms or revoke the trust entirely. Irrevocable living trusts, on the other hand, CANNOT be modified or revoked once established.
  2. Testamentary Trusts: These trusts are created through a will and only take effect upon the trustor’s death. Testamentary trusts are often used to provide for minor children and individuals with special needs, or to accomplish specific estate-planning goals.

Trusts can serve a variety of purposes within estate planning. Many financial planning experts consider trusts to be the cornerstone of estate planning and for many good reasons! In fact, establishing trusts offers a wide range of benefits, which makes them valuable tools in estate planning and wealth management. Some of the benefits of trusts include:

  • Asset protection
  • Probate avoidance
  • Tax planning
  • Charitable giving
  • Provisions for minor children or beneficiaries with special needs
  • Business successions plan

The specific type of trust and its provisions will depend on the trustor’s goals and financial situation. By working with experienced legal and financial professionals, individuals can design trusts that effectively meet their goals and provide for the needs of their beneficiaries.

Six Key Things to Know About Trusts in Estate Planning

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Now that we’ve gone over the definition of trusts and their benefits, let’s delve more into the role they play in estate planning!

1. Types of trusts available.

Trusts are like snowflakes. Each is unique and tailored to different purposes and needs. Some common types include:

  • Revocable Living Trust: This trust is created during the grantor’s lifetime and can be modified or revoked at any time. It’s primarily used to avoid probate and provide flexibility in asset management during the grantor’s lifetime and after their death. Assets in a revocable living trust are still considered part of the grantor’s estate for tax purposes.
  • Irrevocable Trust: Unlike a revocable trust, an irrevocable trust cannot be changed or revoked once it’s established. This type of trust offers asset protection benefits and is often used for estate tax planning, Medicaid planning, and protecting assets from creditors.
  • Testamentary Trust: This trust is created through a will and only takes effect after the grantor’s death. Testamentary trusts are useful for ensuring that assets are managed responsibly and according to the grantor’s wishes.
  • Special Needs Trust (SNT): Also known as a supplemental needs trust, this trust is designed to provide for individuals with disabilities without jeopardizing their eligibility for government benefits such as Medicaid and Supplemental Security Income (SSI). SNTs are structured to supplement, rather than replace, government benefits and can cover expenses not covered by public assistance programs.

2. Importance of naming trustees and beneficiaries.

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Naming trustees and beneficiaries is crucial in estate planning, as it directly impacts how assets are managed and distributed both during the grantor’s lifetime and after their death. Trustees are responsible for managing the assets held in the trust. By selecting someone trustworthy and responsible, the grantor can ensure that their assets are managed properly.

Meanwhile, designating beneficiaries can help ensure that assets are distributed according to the grantor’s wishes. By clearly specifying who should receive what assets and under what conditions, the grantor can prevent misunderstandings, disputes, or unintended consequences. This is especially important in blended families, where there may be competing interests among beneficiaries.

3. Funding and maintaining trusts.

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Funding a trust involves transferring assets from the grantor’s ownership into the trust. This typically includes assets such as real estate, investments, bank accounts, and personal property. Funding the trust allows it to provide for beneficiaries, minimize taxes, protect assets, and achieve other estate planning goals. Trustees are responsible for managing trust assets per the terms outlined in the trust document. This includes investing assets wisely, monitoring performance, and making informed decisions to preserve and grow the trust’s value.

4. Trust administration and legal requirements.

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Trust administration involves the management and distribution of assets held in a trust. Most jurisdictions require the trustee to keep detailed records of the trust. This may involve investing assets, collecting income, paying expenses, and maintaining records of all trust transactions. Additionally, trustees must communicate with beneficiaries and keep them informed about the trust’s administration, financial status, and any significant developments. Because trust administration can be complex, trustees may want to consider seeking professional guidance from attorneys, accountants, or trust administrators.

5. Revising and updating trust documents.

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Revising and updating trust documents is an essential aspect of trust administration and estate planning. As circumstances change over time, it’s important to review and make necessary changes to trust documents so they stay aligned with the grantor’s wishes. Begin by thoroughly reviewing the existing trust document, including the trust agreement or declaration of trust. Next, identify any areas that may need revision or updating based on changes in circumstances or goals since the trust was established. Finally, determine whether the existing trust provisions adequately address current needs and circumstances or whether you need to make changes to reflect those changes.


6. Professional guidance and expert advice in establishing a trust.

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Seeking professional guidance and expert advice is highly recommended when establishing a trust. Trusts can be complicated to set up, as well as expensive. However, professionals know how to establish a trust properly and can help you determine whether a trust is right for your specific situation.

An estate planning attorney specializes in creating legal documents, including trusts, wills, and powers of attorney. They can also guide you through the processing of naming trustees and beneficiaries, funding the trust, and navigating trust administration. Alternatively, a financial advisor can offer valuable insights and expertise in managing assets and investments within the trust. They may also provide ongoing portfolio management and make adjustments as needed to optimize returns and minimize risk.

Common Misconceptions About Trusts in Estate Planning

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#1: Trusts are only for the wealthy.

Many people think of trusts as a financial tool for the wealthy. Maybe your mind goes to “trust funds.” However, this couldn’t be more wrong! Trusts can be a beneficial estate planning tool for many people, regardless of their financial status or background. You don’t have to have a lot of assets or money in the bank to establish a trust!

#2: Trusts are complex and expensive.

Perhaps in line with the previous misconception, many people may believe that trusts are needlessly complex and expensive. While trusts can be more difficult to set up than a will, costs vary widely depending on your situation. According to Trust and Will, they can cost anywhere from under $100 to upwards or several thousand dollars to establish. Their cost typically depends on multiple factors, including whether you make your trust yourself or use an attorney or estate planner. The complexity may also depend on how many assets you own, where you live, and how many beneficiaries you have.

#3: Trusts are irrevocable once created.

While many trusts are indeed irrevocable once created, it’s not universally true for all trusts. In fact, revocable trusts can be altered, amended, or revoked by the grantor during their lifetime! However, irrevocable trusts are typically permanent and cannot be changed once established. Both types of trusts serve different purposes and have distinct advantages and considerations, so make sure that you consult with a qualified estate planning attorney or financial advisor to determine which is the best fit for you!


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Trusts can be a valuable tool in estate planning. However, it’s important to understand them and the ongoing responsibilities associated with them. Additionally, trusts might not be the best option for every person and their assets. That’s why it’s critical to seek the advice of a professional and determine whether a trust is the right fit for you and your estate.

Whatever you do, make sure that you’re proactive about estate planning. If you pass away without a plan, the state will decide to receive your assets. While not always the most pleasant thing to think about, creating an estate plan can save your beneficiaries and loved ones a massive headache and also give you peace of mind.

Still looking for more great articles just like this one? Then be sure to visit our Estate Planning Blog before you go!


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Originally published May 08, 2024


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