What a boring topic you think! Maybe so, but you may come out of this with more questions than answers. If so, then Ive achieved my goal, and that is, to encourage you to learn more! Ask questions!
In any case, why do you need to learn about trusts you wonder, as you continue to skim these lines? There are many reasons to create a trust. Some of the reasons to have a trust include protecting your assets and reducing tax liability. Another reason is to provide for children in a more specific way such as naming a trustee to distribute funds to the children in their interest, with a set schedule of specific distributions as opposed to the children receiving a lump sum all at once at a certain (and some may say very young) age of eighteen. Although setting up a trust in certain specific situations is very beneficial, it is more important that the Grantor (the person who is the original owner of the funds placed in the trust) understands all of the pros and cons of doing so. It is also very important that the Grantor is careful with the language contained in the trust and can ensure that it shall meet all of his/her needs and needs of the family.
A living trust is a trust that is created and funded while the Grantor is still alive. Two basic types of living trusts commonly used in Georgia are the revocable and irrevocable trusts. A revocable trust is a trust where the Grantor retains control. The Grantor can avoid probate of certain assets by transferring these assets to a revocable trust during his/her lifetime. The Grantor can also direct a more specific distribution of assets within this trust. The Grantor can keep the direction of his/her trust estate private after he/she passes away (as opposed to a Will, which becomes a public record once filed in the probate court which is required at the time of death).
The Grantor may always cancel or revise a revocable trust. On the down side, because the Grantor retains control over the revocable trust, the funds the Grantor places in the trust are still considered within the Grantors estate for tax purposes, which may increase the Grantors estate tax liability. They are also possibly reached by creditors, even if they are a bit harder to find, by being in the trust.
An irrevocable living trust is a trust that is set up and funded during the Grantors lifetime, but the Grantor does not retain control over the trust after it is created. The funds that are transferred to this trust (very often as a life insurance policy) are considered outside of the Grantors estate for tax purposes, and the Grantor can still arrange and direct the funds to be distributed in stages as opposed to a lump sum distribution to the spouse and/or children. One of the common purposes of setting up an irrevocable trust like this is to reduce a Grantors estate tax liability.
A testamentary trust is a trust that is created during the Grantors life (often within a Will document) but funded only after the Grantor is deceased. This type of trust, if created and drafted properly, also allows the Grantor to provide for his/her children or other beneficiaries in a more specific way but doesnt have the lifetime maintenance of a living trust. This type of trust can also be created for the purpose of potentially doubling the exemption amount of the estate tax for a married couple if prepared properly.
This article was written by Dara Berger. Mrs. Berger is an estate planning and immigration attorney in Atlanta, who occasionally contributes to this blog. She can be reached at firstname.lastname@example.org.