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What is a Trust?

A trust is an agreement that contains rules you want to be followed for property placed and held in trust for your chosen beneficiaries.  The planning you can do with a trust is virtually limitless, depending only on your imagination (and budget for the lawyer’s fees).  Some of the more common objectives of a trust are to avoid probate, protect property from third parties, and reduce estate tax liability.

We should start with some basic definitions and by identifying the key components of a trust.

  • Person creating the trust.  This person is usually called the “grantor,” although sometimes they may be called “settlor” or “trustor.”
  • Property or Assets.  After you transfer and re-title property in the name of your trust, this becomes the “trust property” or “trust assets.”
  • Beneficiary.  A trust beneficiary (or beneficiaries) will benefit from the trust in some way, usually by receiving some or all of the assets in the trust at some future date and, perhaps, under certain conditions.
  • Trustee.  The “trustee” is the manager of the trust assets.  The trustee can be an individual or a company (usually a trust company or bank).  The trustee’s job is to follow the rules you set up in the trust and protect the beneficiaries’ interests.
  • Living (or Inter-Vivos) Revocable Trust.  You create a living revocable trust during your lifetime.  These types of trusts are often used to allow the grantor to maintain total control over the trust assets during life yet avoid probate at death.
  • Testamentary Trust.  You create a testamentary trust in your will.  Contrary to a living revocable trust, a testamentary trust is funded with trust assets when you die.  This type of trust will not avoid probate, but it can allow one to achieve many of the same objectives as other types of trusts.
  • Irrevocable Trust.  You usually create an irrevocable trust to protect trust assets from creditors or reduce estate taxes.  Because this type of trust is irrevocable, as a general rule, you cannot modify or revoke it.  (So, be sure to get it right the first time.)

It is helpful to think of a trust as a separate entity you have created to actually own property you decide to put in it.  The essence of trust planning is to remove certain assets from your individual ownership and transfer or re-title those assets in the name of your trust.  The simple fact that the trust owns the property -- and not you individually – is the key that unlocks most if not all trust-planning objectives.  Simply put, if you transferred an asset from your name into your trust, you no longer own it.  Your trust does.  So, when you pass away:

  • You avoid probate, which is concerned only with assets actually owned by you individually when you die.
  • Trust assets may be outside the reach of some creditors.  Remember, the trust owns the trust assets, not you.  By using a properly structured asset protection or “spendthrift” trust, assets placed in such a trust may be exempt from some or all of your individual creditor’s claims.
  • You reduce estate taxes because the feds look at one’s “gross estate” when you die to impose estate taxes.  If you successfully transferred assets out of your name into certain irrevocable trusts, those assets may not be included in your gross estate for estate tax purposes.  So, there are simply less assets subject to the estate tax rate, which is currently 40%!

Trusts offer great planning opportunities, but they can be tricky.  Mistakes in creating your trust can prove very costly and cause significant delays.  Get the help of qualified lawyers specializing in wills and trusts to help you set up your trust properly.  Call us at 804-658-3873 or email us at info@golightlylaw.com for a consultation.

Case results depend upon a variety of factors unique to each case. Case results do not guarantee or predict a similar result in any future cases. Also, nothing in this website creates an attorney/client relationship, and you should not leave anything of a confidential nature on this website.

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Richmond, VA 23238

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