The Greatness of Trusts
It’s amazing that the law actually allows you to leave your property to whomever you want, yet few people know to take advantage of Trusts.
What is a Trust?
A Trust is a legal document that allows a property owner to transfer title to the property to a Trustee who will manage the property for the benefit of beneficiaries. Three things are required for a valid Trust: (1) a written trust document; (2) property transferred into the Trust; and (3) the naming of a Trustee and the trust beneficiaries. Trusts were first developed under Roman law, and have become one of the most important tools for managing property and protecting beneficiaries.
What’s so great about Trusts?
Trusts are highly flexible, and can be tailored to meet any number of needs. Private property rights are among the most valuable benefits we have living in a constitutional republic. Our laws allow broad control over the use and disposition of property. You have a great degree of discretion to structure a Trust to suit your needs and desires, as well as the needs and particular situations of your Trust beneficiaries. Trusts can be used to safeguard Trust property for the long term support of your beneficiaries, to protect Trust property from creditors of your beneficiaries, to manage future tax effects on Trust property, to preserve Trust property so that it will be there to help beneficiaries who are minors, or who have special needs, or who are not ready to manage the property themselves. The important point to remember is that property that has been hard earned can be made to benefit others with as many or as few guidelines and restrictions as you yourself choose. Also be aware that Trusts generally do not have to become public or be recorded anywhere, and thus Trusts allow you to keep your property matters private. It’s the flexibility Trusts offer to make property work to serve your interest and the interests of your beneficiaries that makes Trusts an extremely valuable tool, one that you should explore with your lawyer.
Revocable and Irrevocable Trusts
Trusts can be revocable or irrevocable. A revocable Trust can be revoked, or terminated, at your discretion; it doesn’t have to continue any longer than you want it to. You might make a revocable Trust into which you place property you may want to sell later. You can make a revocable Trust to address what you anticipate to be a short term need of beneficiaries. The Revocable Living Trust is a means to pass property at death to beneficiaries while avoiding probate; it is an alternative to a last will and testament. An irrevocable trust cannot be revoked; once made, it generally cannot be changed. Note, however, that Tennessee law does allow even irrevocable trusts to be modified by a court or by consent of all the beneficiaries, under certain conditions. You might make an irrevocable Trust to presently transfer property, and the future taxation of property interests, to beneficiaries. You make an irrevocable Trust to transfer, now and forever, control of property, for various purposes. If you have set up a Trust in your last will and testament, once you have died that Trust becomes irrevocable, or generally not changeable.
Trusts under Wills
A Trust in a last will and testament is called a testamentary Trust. Testamentary Trusts are usually used for two purposes. They can be used like lifetime Trusts to have a Trustee manage property for beneficiaries who are minors or who are not ready to manage property for themselves. They can also be used to minimize or avoid estate and inheritance taxes (“death taxes”). When used for tax purposes, they may be called marital trusts, family trusts, or credit shelter trusts (to allow each spouse to take advantage of his or her credit against death taxes). When you talk with your lawyer about your estate plan, your lawyer will advise you whether or not a testamentary trust is to your advantage.
The Importance of the Trustee
A trust creates what is called a fiduciary relationship. The Trustee you name assumes a fiduciary responsibility, which means a very high level of duty to act in the best interest of the Trust beneficiaries, to disregard self-interest, and to handle the Trust property with skill and care. This is sometimes spoken of as a Trustee’s duties of loyalty and care. If a Trust matter ever gets in court, the judge will be very interested in knowing how skillfully and carefully your Trustee has carried out his or her responsibilities. A Trustee can be an individual or a corporation. An individual Trustee should be a person who has the business sense and skill to properly manage the Trust property. In a Trust involving a family, it can be helpful to have co-Trustees, a family member or friend and also a corporation. The individual should understand the family needs and dynamics, whereas the corporate co-Trustee is often more skilled in property management and can offer objectivity and impartiality in making decisions for the benefit of the beneficiaries. In many instances, it is wise to name a sole corporate Trustee instead of an individual Trustee. A corporate Trustee is in the fiduciary business; it understands the many and often complicated duties expected of a Trustee. A corporate Trustee brings experience and expertise to the job. A corporate Trustee is also able to make the tough calls when beneficiaries differ on what they want from the Trust. The bottom line is to give very careful thought when you name your Trustee in any Trust. That’s a discussion your lawyer should be prepared to have with you.
At Parks, Bryant & Snyder, PLLC, we are experienced in all matters related to the use of Trusts. We want to use that experience and expertise to help you take advantage of this extraordinarily useful legal tool. If you have any questions regarding Trusts, contact us today through this site or call us at 931-398-5200.