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What Is a Trust?

What Is a Trust?

This article was originally published as part of our series on trusts in the Dominion Post, Senior Post special. Check back each month to stay up to date as we release each article from this series!

A common misperception is that trusts are only for the wealthy, but that is not true. In fact, there are a variety of reasons to consider a trust for those of us with even modest assets. Over the next several articles, we are going to learn more about trusts and the types of trusts used in various situations. Our readers may want to save these articles to refer back to as our new articles are released.

A trust is a financial arrangement among three parties. The party creating the trust is referred to as the grantor, trustor, or settlor. The party charged with managing the trust is referred to as the trustee. And of course, the third party would be the beneficiary. Every trust should name one or more beneficiaries who may benefit from the trust according to the terms of the trust as defined by the grantor.

Not too long ago, many people created trusts to avoid estate taxes upon their death. Estate plans can still use trusts to avoid estate taxes, but it is estimated that less than 1% of us would benefit from that type of trust because West Virginia no longer has an estate tax and the federal estate tax currently has an exemption that is over $11 million. Although we do not all need a trust, there are a variety of reasons that many of us should have one.

Trusts are a valuable tool to ensure your beneficiaries do not lose their inheritance due to an addiction, divorce, irresponsibility, or other risks. The trustee has a fiduciary duty to manage trust investments and may only distribute the trust assets as provided by the terms the grantor established in the trust. This is very useful for minor, disabled or even immature beneficiaries.

Revocable living trusts are created by the grantor for ease in managing assets during that grantor’s lifetime. One of the most desirable benefits of a trust is that trust assets do not go through the probate process, meaning that after the grantor dies the process to settle the trust is much easier than the probate process which is used for a last will and testament. Avoiding probate is an important benefit to a grantor who prefers privacy, simplicity, and who wishes to make sure their estate may be settled quickly.

Irrevocable trusts are often used to protect assets from potential liabilities, especially the high cost of long-term care in a nursing home. An irrevocable trust is not easily changed by the person creating it, but there are various ways to access the assets to sell, reinvest, or even distribute assets. Irrevocable does not mean that the assets are ‘stuck’ in the trust. These trusts usually have to be created in advance in order to achieve the protection the grantor desired.

Finally, special needs trusts (also known as supplemental needs trusts) are designed for persons with disabilities. These trusts are set up to enhance their quality of life above and beyond the benefits, that person may obtain from public benefits. Sometimes these trusts set up by the person with disabilities and other times they are created by a loved one.

Next month we will look at testamentary trusts and learn how these trusts can be created by a person’s estate after they pass away.

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Disclaimer: Seamon Law Offices, PLLC is licensed in the states of West Virginia and Pennsylvania. Doreen Seamon, and Seamon Law Offices, by means of this website, are not offering legal advice. With respect to the material contained in this website, some of the material may be affected by current and future changes in the law. For those reasons, the accuracy and completeness of such information, and the opinions of its author, are not guaranteed. In addition, because of the complexity and interrelationship of various areas of law which are presented in this website, from which there may be certain exceptions or limitations, the strategies and plans outlined in this website may not be suited for every individual, in every state. As such, it is strongly suggested that before employing any one or more of the techniques, strategies, expositions of any law, the reader should secure the services of a competent attorney in their respective state.

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