While having a Will is important for many reasons, it does have its limitations. If you want or need additional “flexibility” or “longevity” in your estate plan, a Trust may be an appropriate feature of your estate plan. A Trust can serve many purposes, including (a) providing asset protection, (b) nuanced tax planning, (c) avoidance of probate, (d) planning for your mental incapacity, (e) providing for contingencies in case of divorce or bankruptcy of a beneficiary, (f) qualifying disabled beneficiaries for or preserving their government benefits (aka Special Needs Planning), (g) protecting your beneficiaries “from themselves” by holding assets in Trust for your beneficiaries until they are “old enough” or “mature enough,” and/or (h) by attaching other “strings” or conditions to your assets before they can be distributed. Essentially, a Trust can help you control (even beyond your death) under what circumstances your beneficiaries would get your assets.
Let’s look at a classic example of when a Trust may be preferable over a “basic” Will. Assume your children (or other beneficiaries) are “too young” or “too immature” (or both) to receive your assets if you were to die today. Assume further that you want your beneficiaries to attain certain ages or meet certain conditions (or both) before your beneficiaries would receive your assets. For example, let’s say you don’t want your beneficiaries to receive your assets until they turn 25 (or 55), or until they have completed a professional degree. In that case, you would need a Trust where your assets can be held for your beneficiaries pursuant to your instructions, until they attain certain ages and/or meet certain conditions. The trustee would manage the assets for the beneficiaries and make distributions to them, until they are old enough or have satisfied the conditions you established for them.
The person in charge of managing the Trust’s assets and executing your instructions is called the trustee. The trustee can be a relative or a friend; but depending on your situation (including the type of your assets and their values), in certain situations it may be advisable to select a co-trustee, a professional trustee, or both.
Generally speaking, there are two types of trusts: Revocable Trusts and Irrevocable Trusts. These two categories can be broken down further into lifetime Trusts (aka Inter Vivos Trusts) and Testamentary Trusts. A lifetime Trust is one that you create during your lifetime, whereas a Testamentary Trust is one that you create through your Will and that doesn’t come into existence (and therefore cannot get funded) until after your death.
