Long-Term Care Planning: Establishing a Trust
Copyright © 2014 AARP. All rights reserved.
A trust sets aside certain assets or an amount of money for another person. It allows money to be disbursed over time rather than as a lump sum both before and after the grantor’s death. A trust is a good option to consider for people with beneficiaries who aren’t able to manage money well.
These beneficiaries may have developmental disabilities, be minors, or just be unreliable with money. Sometimes trusts are used to transfer property, such as a vacation home, that is not easy to divide evenly among several beneficiaries. They are also often used by people with substantial assets because they can help reduce estate taxes.
Probably the most common reason people set up trusts is that they want to control the disposition of the property more readily than they can in a will.
You can set up a trust so that the beneficiary receives the proceeds of the trust after your death or upon reaching a certain age. For instance, you can set up a testamentary trust in which you put some assets with conditions on their use, such as for a grandchild’s education or when the child reaches the age of 25.
If you choose to prepare a trust, you still need to have a will. The will provides a safety net if for some reason some of the trust property cannot be transferred.
A trust can hold money, real estate, stocks and bonds — anything of monetary value. The trustee is a person or institution that you select to manage the trust property. The trustee has a fiduciary duty (that term again!) to use the property as the grantor has indicated. The property stays in the same place, but legal ownership is transferred to the trust.
If, after reviewing information about wills and probate, you realize that your estate or your parent’s will probably qualify for a simplified probate process, will not have a big tax bite taken out after death, and will not involve complicated financial arrangements, then setting up a trust will probably not get you much but will be costly and cumbersome.
Even so, many people are attracted to the idea of a living trust (maybe it’s the word living, which moves planning out of the realm of death).
A living trust is often touted both as a way to retain control of assets and to avoid probate. This is how a living trust works: You set up a trust that you both own and control as both the trustee and the beneficiary while you are alive and not disabled.
You also name the successor trustee who will manage the trust after your disability or death and successor beneficiaries who will get the assets in the trust after your death. You can name someone else as trustee if you choose, and you can revoke that decision later.