TRUSTS AND YOUR ESTATE PLAN Understanding Trusts Is Essential for Anyone Beginning the Estate Planning Process Because they So Often Play A Large Role In Any Plan Larry Deason and Shawn Garner Estate Planning and Elder Law Attorneys in Yuma Arizona A trust is essentially a legal relationship between you, other people, and some of your property. When you create a trust you create a type of legal entity that can own property on your behalf. If ou’ e lear ed a little a out the estate pla i g pro ess, ou’ e pro a l heard about trusts. But what are trusts? What do they do? How do they work? What role do they have in your estate plan? Understanding trusts is essential for anyone beginning the estate planning process because they so often play a large role in any plan. Unfortunately, because most people do ’t ha e u h e perie e ith them, these tools can often seem mysterious. To take the mystery out of trusts, and to get a better understanding of why they are so important, here are some basic concepts you should understand about these vital estate planning tools. Relationships and People A trust is essentially a legal relationship between you, other people, and some of your property. When you create a trust you create a type of legal entity that can own property on your behalf. The property you give to the trust is not technically yours in a legal sense, even though in many situations you will still be able to use and manage it just as you would if you were the individual owner. The relationship you establish when you create a trust exists between several key people. These are: Trusts and Your Estate Plan Deason Garner Law Firm 2  The Settlor. A person who creates a trust is called a settlor, grantor, or trustor. In order to create the trust you must be a capable adult and set your wishes down in writing.  The Trustee. In the document the grantor creates that establishes the trust, the grantor will select a person who will serve as the trustee. The trustee has the legal obligation to manage all the property the trust owns. Trustees can be individuals or organizations. In some situations, the settlor can serve as his or her own trustee.  The Beneficiaries. The beneficiaries are the people or organizations who have the legal right to use or benefit from the property the trust owns. The trustor can choose any beneficiaries he or she likes, and is often a beneficiary as well. Trust Agreements The specific document that creates a trust is known as the trust agreement or, sometimes, as the trust instrument. In addition to naming the important people involved in the trust, the trust agreement must also contain other specific details.  The Purpose. Grantors must create a trust with a specific goal or purpose in mind. Stating the goal in the trust agreement is important because the trustee has to manage the trust in accordance with the principles established by the grantor.  The Type of Trust. There are many different varieties of trusts available. Simply creating a document stating that you wish to create a trust is not enough. You have to state the type of trust you want to establish. (We discuss trust types in the next section.)  The Trust Rules. Depending on the type of trust you choose to create, you also have to create certain rules or guidelines. Some of these rules will have to comply Trusts and Your Estate Plan Deason Garner Law Firm 3 with different state or federal laws, while others are up to you as the grantor to determine. Trust Types As we mentioned earlier, there are numerous types of trusts available. Each type of trust will serve a specific purpose and give you different options. Different trust will also convey certain benefits, while other trust offer different benefits. In general, it’s useful to differe tiate et ee differe t t pes of trust ide tif i g when they take effect and whether the grantor is allowed to change their terms or rules.  When the trust takes effect. A trust you establish that takes effect immediately, or otherwise while you are still alive, is known as a living trust. On the other hand, a trust that only takes effect after you die is known as a testamentary trust. Testamentary trusts are created through the terms you include in your last will and testament, hence their name. Because your will does not take legal effect until after you are dead, any trust you create through your will also does not take effect until after you are dead.  When the grantor can change terms. If the grantor creates a trust that he or she can change, this is known as a revocable trust. Grantors retain the ability to modify (or revoke) a revocable trust at any time. On the other hand, a grantor can choose to create a trust that, once it takes effect, cannot be changed. These are known as irrevocable trusts. All testamentary trusts are irrevocable, and all revocable trusts are living trusts, though there are also irrevocable living trusts. Trust Management The trustee manages the trust in much the same way that the CEO of a corporation manages a business. Trustees have a duty to manage trust property responsibly, and to Trusts and Your Estate Plan Deason Garner Law Firm 4 do what is in the best interests of the beneficiaries. Trustees cannot simply use their position to, for example, take control of trust property and spend the money any way they choose. Trustees are considered fiduciaries, meaning they have a heightened legal obligation to the beneficiaries. Trustees who fail to adequately manage trust property risk exposing themselves to civil, or even criminal, liability. Trust Options and Selection Creating a trust is often essential regardless of the kind of estate plan you want to create. Even the most of basic estate plans will typically use one or more types of trusts because the devices are so useful. Depending on the complexity of your estate and what you want to accomplish, you might end up using several types of trusts. The important thing to realize is that e ause ost people do ’t reall k o hat a trust is a d hat optio s the ha e a aila le to the , ou o ’t e a le to k o hat our estate pla eeds u til ou speak to an expert. After discussing your situation and knowing what you want to accomplish with your estate plan, your estate planning lawyer will be able to give you advice on the type of trusts you need to create to protect your interests and make sure your wishes are met. Trusts and Your Estate Plan Deason Garner Law Firm 5 About the Authors Larry Deason and his staff have been providing quality legal services for clients since 1971. Their mission is to assist people who are concerned about protecting their families from the devastating legal and financial impacts of disability, death, and taxes. Larry Deason Because he believes in the importance of an informed public, Deason spends considerable time educating consumers about Estate Planning issues. He writes a monthly Estate Planning column in The Sun, and he regularly conducts seminars on various Estate Planning topics. Deason and his staff believe that in many instances Living Trusts offer clients a proven and powerful tool for protecting their families from the expense and delay of probate, as well as a strategy for eliminating or minimizing federal taxes. Deason’s firm is staffed with paralegals and consultants who are experienced and trained in a variety of Estate Planning areas. The aim of each member of the firm is to help clients accomplish their Estate Planning goals while taking the mystery out of the whole process. We take pride in knowing that our clients feel “peace of mind” once the planning process is completed. Shawn Garner In 2008, Mr. Garner began practicing law in Yuma in the fields of commercial litigation and bankruptcy. In 2011, Mr. Garner switched his field of practice to exclusively estate planning because he found it more rewarding to help people avoid the costs and stresses associated with litigation more than trying to resolve disputes through litigation and court intervention Deason Garner Law Firm 242 West 28th Street, Suite A Yuma, AZ 85364 Phone: (928) 783-4575 www.DeasonGarnerLaw.com Trusts and Your Estate Plan Deason Garner Law Firm 6