A trust is a legal relationship where one person, the “trustee,” is entrusted with property that they must use for the benefit of one or more “beneficiaries.” But not every trust is the same, and there are many different kinds of trusts.
What is a Living Trust?
A living trust (or inter vivos trust) is simply a trust you create during your lifetime. However, the term is generally used to mean a revocable trust, which is a trust over which you have a power of revocation, i.e., you can revoke or amend the trust at any time. The person who creates the trust, the “settlor,” is usually also the trustee and the beneficiary during their lifetime.
Because you are in complete control of the trust, a living trust does not change or limit what you can do with your assets during your lifetime. Upon your death, the trust agreement—which lays out the terms governing the trust, sort of like the bylaws of a corporation—dictates who will become the trust beneficiaries and how the trust assets will be distributed. A trust is similar to a Last Will and Testament in that regard.
Unlike a Will, however (which must be probated after death), a fully funded trust can avoid the need for probate. While you are the trustee during your lifetime, the trust agreement names successor trustees with the power to manage the trust in accordance with your wishes following your death.
By transferring title of your assets into the name of the trust, you create a mechanism by which the successor trustee can distribute those assets without needing to get a court involved.
Oklahoma has a formal, supervised probate process that normally takes six months to a year. Even for a small estate, the attorney fees and costs involved in a probate is often $5,000 at minimum.
But with a trust, assets can often be distributed in 30 to 60 days (or even faster) after your death. And whereas probate is a court process that requires your Will and asset information to be filed of public record, trust administration is private. Only your beneficiaries are entitled to know what you leave behind.
Probate avoidance is just one of the differences between a trust and a will. Although a trust is usually a great option, you should speak with an estate planning attorney to help you decide what kind of estate plan is the best for you. You can also download our free Estate Planning Guide with 70+ pages of important estate planning information about trusts and other documents.
Other Types of Trusts
A revocable living trust is the most common kind of trust, but it is not the only kind. There are also irrevocable trusts. Whereas a revocable trust can be changed at any time, an irrevocable trust is more or less set in stone once you create it. While anyone can make an irrevocable trust, they are normally used for specific purposes or in specific circumstances.
Special Needs Trust: A special needs trust, also called a supplemental needs trust, is a type of irrevocable trust that can allow a beneficiary to benefit from the assets or income of the trust without causing those resources to count against them for the purpose of needs-based public assistance programs such as Medicaid or Supplemental Security Income (SSI). However, the beneficiary cannot be the trustee of the trust or have any control over trust assets. There are also a variety of necessary restrictions on how the trustee can use assets.
Irrevocable Life Insurance Trust (ILIT): An ILIT is an irrevocable trust that is designed to hold one or more life insurance policies. Upon your death, the proceeds from those policies will be distributed to the beneficiaries you name. The benefit of an ILIT is that it can keep the value of the insurance proceeds from being included in your gross estate for estate tax purposes. You cannot be in control of the trust, meaning you must designate someone else as trustee. Additionally, an ILIT must satisfy various IRS regulations, and it requires active maintenance by you and the trustee.
Charitable Remainder Trust (CRT): A CRT is another kind of irrevocable trust that can afford estate tax benefits. The trust holds income-producing assets, such as stocks that pay out dividends. During your lifetime—but for no more than 20 years—you and/or others can be the beneficiary of the trust, and the income earned by trust assets will be paid out to you. Upon your death, or at the end of the 20-year period, the remaining assets will go to one or more charitable organizations of your choice. If done correctly, this can provide an estate tax deduction if your estate is subject to any estate tax.
There are many other types of irrevocable trust, but none of them are quite as simple as these explanations may make them seem. To talk with a qualified professional about the kind of trust or other estate planning documents that may be best for you, contact the experienced Oklahoma City estate planning attorneys at Postic & Bates to schedule a free consultation.
[As with all of our online materials, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]