Ways to Use Trusts in Estate Planning to Avoid Probate and Control Your Legacy
Using a trust agreement is an excellent estate planning tool for many families. It allows you to control and protect your estate during your lifetime and after you’re gone. It also creates many questions about what happens when property is owned by a trust.
When you create a living trust, it’s important to know who is responsible for the management of the trust and who has access to the trust. The person who creates a trust agreement is called the grantor. They have the authority to fund a trust with property, transfer assets, and dictate the terms of the trust. During their lifetime, they are also typically the initial trustee of the trust.
A trustee is a person named to manage the assets or the person who is in control of the property. Upon the death of the grantor, a successor trustee will continue to oversee those assets under the control and direction of the instructions initially laid out in the agreement.
One thing to consider is how different types of trust agreements may change who has control of the assets in your trust, and what can be done with them. Also, how this changes during a grantor’s lifetime versus after death. Unlike probate, a trust can continue to manage and control assets held in the trust long after the grantor is gone.
Who Controls Property in a Revocable Living Trust?
Generally speaking, the grantor, or the person who created the trust, is the one who controls the property in a revocable living trust. As the name implies, this type of agreement can be changed at any time by the person who created it.
A living trust is a revocable trust. They can add or remove assets and even revoke or terminate the trust at any time. This means that as long as they are alive, they have complete control over their estate plan and what happens with their assets and property after death.
When setting up a living trust, one must decide what property or assets should be used to fund the trust. This can include real property, bank accounts, insurance proceeds, and even family heirlooms. All these items should be discussed with your estate planning attorney prior to executing any agreement. Different types of property require different steps to fund or transfer.
Once transferred, the items are re-titled to reflect ownership of the trust agreement. For example, real property will be re-titled to reflect the name of the trust, not an individual. And while the ownership has changed, the person who created the trust still has the authority to dictate what happens. They can spend money from the trust, buy or sell assets, move it in or out of trust ownership, or use and benefit from anything held in trust during their lifetime. This changes if the grantor becomes incapacitated or dies.
When this happens, a living trust or revocable trust becomes irrevocable. Upon your death, the person appointed as successor trustee now manages and controls trust assets on behalf of its beneficiaries. And while they have a duty to tend to the trust property and assets being held, they don’t have the authority to act as they choose. Now they need to manage or distribute the property according to the instructions in the agreement. This often means distributing the property to beneficiaries.
Who Controls Property in an Irrevocable Trust?
In an irrevocable trust, the property is handled differently. In this type of agreement, a trust cannot be revoked or terminated once funded until it has fulfilled its purpose. Property or assets cannot be removed unless distributed to a beneficiary as directed by the agreement.
Depending on the purpose, the person who creates the agreement may or may not be named the trustee. Regardless, a trustee is legally obligated to manage and distribute the assets in accordance with the trust’s provisions.
That doesn’t mean the person who created the trust can’t still benefit from it. For example, if real estate is transferred into an irrevocable trust, a grantor may continue to live on and use that property as long as it’s allowed for under the terms of the agreement. The biggest difference is a grantor may not revoke the trust or remove assets titled in the name of the trust once they have been transferred.
How Does a Trustee Manage Trust Assets?
When a person is appointed as trustee, they have what is called “Fiduciary Duties.” This means they have legal obligations and rules to follow when managing a trust. They are responsible to the grantor and beneficiaries for managing trust property and assets.
Typically if you created the trust, you are also the trustee until you are unable to manage the assets or the time of your death. Unlike a will, trust assets do not go through probate. Instead, the successor trustee of your trust takes over the responsibility outside the probate court process.
The trustee must adhere to the trust agreement when administering and distributing assets and comply with all relevant laws. They must also ensure that all beneficiaries receive their share of assets outlined in the agreement. A revocable living trust is controlled by its creator or grantor while they are alive, allowing them to alter or cancel it at any time. Upon their death, however, the designated successor trustee takes over management of any property held within it according to its terms. The successor trustee is responsible for ensuring assets pass or there is a transfer of ownership to the intended beneficiary.
An irrevocable trust works a bit differently. Once created, it cannot be changed. Once a grantor transfers ownership, the assets must remain in trust. In this case, an appointed trustee manages the trust’s assets, such as real estate and personal property, on behalf of the named beneficiaries. While named beneficiaries have a legal interest in the property, they do not have a legal right to possess the asset or property until it is distributed.
Does a Beneficiary have Control of Trust Property?
While a beneficiary to a trust agreement does have some rights, they do not control the property or the assets. They also do not have any say over which property or assets are used to fund a trust. A beneficiary does not have a duty or responsibility like a successor trustee.
However, they can ensure a successor trustee is following the rules and properly managing the property being controlled and managed by the trust agreement. A trust allows a trustee the authority to manage assets on behalf of a beneficiary or transfer ownership, as directed by the trust agreement.
Is a Trust the Right Choice for my Estate Plan?
A properly drafted trust agreement can serve you during your lifetime and protect your family for years. It provides privacy to your family and avoids a lengthy and potentially expensive probate process. It can shield your estate from creditors and protect assets against risk and liabilities. It can be an effective planning tool to lower the value of a taxable estate for estate tax purposes.
All of these benefits while still allowing you to remain in control of your property and assets during your lifetime. Beyond your lifetime, it ensures that a successor will carry out your wishes. Secure your future with Legacy Law Centers. Our experienced estate planning attorneys will help you protect and manage your estate for generations. Contact us for a complimentary consultation today.