Trusts 101

Do I need a Trust?

A Trust is an arrangement you make with a trusted person (the Trustee) to convey property as you direct. This document can be one of two types: “living” (also called inter vivos) or “testamentary.”

• If you create a Trust during your lifetime by signing a trust document, it is a Living Trust. Living Trusts are in effect even if they have no property in them until your death — they are “unfunded.” If you title property in the name of your Trust during your lifetime, then your Trust is said to be “funded.” The assets in a funded Living Trust avoid probate because they pass to your beneficiaries under the terms of your Trust, not under the terms of your Will.
• You create a testamentary Trust through your Will. Because Wills do not take effect until death, these Trusts do not exist until death. In many states, such as Ohio, testamentary trusts are undesirable because they are subject to probate court jurisdiction. The preferable approach is to use Living Trusts into which your property is titled before your death, or after your death pursuant to your will, beneficiary designations, etc.

Living Trusts can:

• Reduce or defer estate taxes in some cases.
• Manage funds for children or other beneficiaries until the ages you have chosen.
• Permit planning for children from prior marriages.
• Facilitate business succession.
• Hold assets to avoid probate and provide privacy.
• Allow management of your finances if you become incapacitated.
• Provide creditor protection.
• Provide protection for children with disabilities.
• Manage a vacation home across generations (often through an LLC with or without a Trust).

Many people have been led to believe that Trusts are “one-size-fits-all” forms that solve tax and probate problems. That is not accurate. Instead, they are legal instruments that must be specifically prepared for each client’s needs. They can be one part of a plan — often a crucial part — but they can be useless if you haven’t carried out other parts of the plan, such as retitling assets and changing beneficiary designations.