Clients who seek to disperse their worldly assets in a complex or specific manner will often use living trusts as the vehicle of choice. These versatile instruments can provide users with a wealth of benefits and protections that ensure that their financial wishes and needs are met in an efficient manner while they are living, and also after they die.
If you are unsure of exactly how your assets will be dispersed once you are gone, read on to find out how a revocable trust can be a big benefit. (See also: Establishing a Revocable Living Trust.)
Revocable Trusts’ Constitution
A trust, by definition, is a legal instrument created by a lawyer. A trust resembles a corporation in that it is a separate entity that can own, buy, sell, hold and manage property according to a specific set of instructions. It has its own tax ID number and can be taxed as a separate entity or structured as a pass-through instrument that passes all taxable income generated by the assets in the trust through to the grantor. This is usually the case for revocable trusts, as the tax rates for trusts are among the highest in the tax code.
There are typically four parties who are involved in a trust:
The grantor is the person who creates the trust (by paying a lawyer to draft it) and then funds it by depositing cash or assets into the trust account. Tangible property is simply re-titled in the name of the trust.
The trustee is appointed by the grantor to oversee the management of the assets in the trust and follow any instructions that the grantor has written in the trust.
The beneficiary is the recipient for whom the assets are managed.
The attorney or another party that actually creates the trust document itself.
The grantor, trustee and beneficiary (at least the primary beneficiary) can all be the same person in many cases. (See also: 10 Questions to Ask Your Estate Planning Attorney.)