Q. What is a Trust?

5 Jul

 

A. A trust is an arrangement by which you transfer ownership of your property into a trust throughout the course of your lifetime. To fully understand how a trust operates, let’s take a look at the four main components:

  1. Grantor – the creator of the trust
  2. Trustee – the person or entity that distributes and manages the trust property according to the trust documents 
  3. Trust Assets – property transferred into the trust
  4. Beneficiaries – those who receive the benefits of the trust

Q. Are there different types of Trusts?

A. Yes. Once you understand the primary mechanisms that make up a trust, you’ll need to be aware of the different types of trusts. Trusts can be designed for many different financial and personal situations. The most common trusts are: credit shelter, incentive, generation-skipping, QTIP and revocable (living) and irrevocable trusts. However, the most common of these are the revocable and irrevocable trusts.

Q. What is a Revocable Trust?

A. Unlike a will, which comes into play only after you die, the living trust can start benefiting you while you are still alive. The trust is revocable in nature, which allows you to make changes to fit your personal situation. It is established by a written agreement or declaration that appoints a trustee to manage and administer the property of the grantor. As long as you’re a competent adult, you can establish one. In essence, the trust is like a rulebook for how your assets are to be handled when you die. As the grantor, or creator of the trust, you can name any competent adult as your trustee – (some people prefer to choose a bank to fill this role).

Q. What about an Irrevocable Living Trust?

A. An Irrevocable Living Trust is created by a written agreement between you and the person you choose to manage the assets in the Trust. The terms of the Trust Agreement should be tailored to meet your specific needs and objectives. On your death, your trust assets will be distributed directly to your named beneficiaries without the costs, problems, publicity, or delays of Probate. All of the assets in the Trust are governed by the Trust Agreement signed by you and your Trustee. The terms of the Trust Agreement are critical in order to protect assets in the event of a catastrophic illness. The state and federal Medicaid laws have stringent requirements pertaining to Trusts. Assets in Trusts failing to meet these regulatory standards will become vulnerable in determining Medicaid eligibility.

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