Trusts

A trust is an estate-planning tool that manages real estate or personal property established by one person (grantor or settlor) for the benefit of another (beneficiary). A trust can replace or supplement wills and manages the distribution of a person’s property by transferring its benefits and obligations to different people.

Testamentary Trusts

Testamentary trusts are commonly specified in wills and are used to transfer property into the trust only after the death of the grantor. A trust allows a grantor to stipulate the conditions for receipt of benefits as well as to disperse payment of benefits over a period of time.

Living Trusts

A living trust, or “inter vivos” trust, begins during the grantors life and can be constructed to continue after his or her death. Living trusts are either revocable or irrevocable. A revocable living trust allows the grantor to change or expunge the terms of the trust at any time after the trusts commences. It commonly supplements a will and in most cases specifies that it is irrevocable at the death of the grantor. In the case of an irrevocable trust, the grantor permanently surrenders the right to make changes once the trust is created.

Amending a Trust

Modifying a trust is done through an amendment created and signed by the grantor. Amendments should be made to change or add beneficiaries, change trustees or amend disposition of assets in the trust. An amendment does not have to be made to a trust to add newly acquired property.

AB Trusts

An AB trust, also referred to as a credit shelter trust, lets a couple pass the maximum amount of property to their children or other beneficiaries after both spouses die while at the same time ensuring the surviving spouse is financially comfortable during his or her lifetime.

In the case of an AB trust, each spouse leaves most or all of his or her property to the trust as opposed to leaving it to the surviving spouse. The surviving spouse can use that property, with certain restrictions but doesn’t own it outright. This allows for larger tax savings. The property isn’t subject to estate tax when the second spouse dies because the second spouse never legally owned it.

Last updated: Oct. 1, 2008