In my last blog, I explained why your will won’t get you where you want to go.  If I have managed to convince you (or maybe even if you’re still up in the air), then let me explain to you how a trust can help get you there.  A trust is like a bucket with instructions written on it about what to do with the stuff inside.  When an attorney sets up a trust for you, they help you legally write the instructions for how to handle the stuff inside.  During the process of asset alignment, (formerly known as funding) they should help you to make sure that all of your stuff gets in the bucket.

Now that everything is in the bucket, and you’ve hired an attorney to monitor the changes in your assets, the law and your circumstances, you can relax about your loved ones being taken care of when something happens to you.  Here is how it works.  The Trustees of the trust are holding the bucket, following the instructions, and making sure that everything happens as it should from day-to-day.  In the case of a revocable trust, you will likely be the Trustee of your own trust (and still in control of your assets).  When you die, instead of your stuff falling on the floor as would happen in probate, there are instructions on the bucket (in the trust) for another person’s hands to come on the bucket and take control (a successor Trustee).  Because the trust does not die, none of the assets aligned with the trust have to go through probate, meaning your successor Trustee has immediate access to those assets and can use them as needed to care for your loved ones and handle your final expenses.

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In every movie or TV show where there are very wealthy characters, there is usually one or more who are “trust fund babies”, yet this is a popularized Hollywood definition. While this can be the case sometimes, it is not the main use of trusts. An article from The Balance, “Trust Fund Definition in Estate Planning”, helps break down the more common use of trust funds.

Trusts are a great estate planning tool, and “trust fund” in estate planning terms can mean “living trust”. This means the trust will function even after the grantor’s death. The grantor is the person is the one who forms the trust. Trusts are generally established in two ways: revocable and irrevocable. Irrevocable trusts are when the grantor establishes a trust and immediately the management is passed to the trustee. Irrevocable trusts that continue to operate after the death of the grantor are what are typically referred to as trust funds. The assets in this trust provide long-term financial support to the beneficiaries. With a revocable trust, the grantor is the trustee and manages the trust themselves during their lifetime. Most revocable trusts are settled once the grantor dies, and the property held by the trust is transferred to the beneficiaries, effectively dissolving it. When an outright distribution occurs however, the beneficiaries lose any protections the trust provides. Our firm will typically plan for the property to sit in a “Beneficiary Controlled Asset Protection Trust” (a “BCAPT”) to provide the beneficiary the option of protecting the assets from divorces, bankruptcies and lawsuits.

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Living trusts have numerous advantages that many are failing to utilize. Not capitalizing on living trusts is one of the top estate planning mistakes according to Forbes in, “7 Big Estate Planning Mistakes – Not Making Full Use of A Living Trust”, the fourth in a series of articles. This mistake stems from misunderstanding what it means to have a living trust and its benefits. So, first, let’s clarify how it works.

A living trust, typically set up by you and your spouse, is what most of your assets are transferred into once you establish it. You and your spouse will serve as co-trustees. The main difference once your assets are placed in the living trust is your title. You are no longer an owner as an individual, but instead as a trustee, yet you still have full control over these assets and manage them as you did previously.

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A recent article from nj.com, “What revocable land trusts mean to Medicaid eligibility,” starts with what sounds almost like a warning: it’s not easy to protect or hide assets from Medicaid. A revocable land trust won’t help to protect an asset from Medicaid’s spend down requirements, because a trust that’s revocable can be revoked or terminated at any time by the grantor.

A land trust, or sometimes referred to as a realty trust, is a private agreement with the trustee agreeing to hold title to property for the benefit of the beneficiary or beneficiaries. The creator of the trust is called the settlor or trustor. This person is usually the titleholder to the property, before it’s transferred into the trust.

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