Trustor is the name given to individuals that establish trusts. Trusts are used to safeguard property and establish beneficiaries to receive assets upon the Trustor's death. A Trustee is designated to manage the trust. In most cases, this is the person that sets up the trust, but there are times when another person is in charge.
The term, Trustor is used with all kinds of trusts including living, land, testamentary, and irrevocable life insurance trusts. Trusts are commonly used with estate planning to avoid probate and reduce estate taxes.
Probate is always needed when estate assets are not transferred to a trust or protected by other estate planning strategies. The process is usually quite slow; especially in heavily populated areas where courts are overburdened.
During probate all estate assets are frozen while the courts validate the Will and ensure settlement procedures are completed. This can be a huge burden for relatives; especially if big ticket items, like real estate, are involved.
Revocable living trusts are an easy way to avoid probate and transfer property to beneficiaries. Trustors retain control over property held in a living trust. Individuals write a last Will and designate beneficiaries and a Trustee to settle the estate upon death.
Anyone can setup a living trust. However, it's important to understand the process to prevent problems later on. Most people find it easier to work with an estate planner or probate attorney, but there are other options that are less costly.
One trusted source for learning about living trusts is Nolo.com. This self-help legal website offers how-to articles, books, do-it-yourself kits, and online services that create trust documents.
Real estate land trusts are a good way to protect property against lawsuits and probate. Investors often set up land trusts because of the privacy and protection they offer. Since trusts typically cannot be sued, property is shielded from liens and judgments.
Land trusts also offer tax advantages to beneficiaries and allow for ease in transfer of ownership. They are a good choice for people that plan for incapacity because a co-Trustee can be designated to take control if the Trustor becomes incapacitated.
Testamentary trusts refers to a last will and testament that establishes a trust upon death. A common use is to provide for minor children or people with disabilities that will inherit a sizeable amount of cash or valuable assets.
Irrevocable life insurance trusts (ILIT) are used to remove insurance proceeds from the estate. Estate tax is imposed on everything a person owns at the time of death. This includes life insurance proceeds. ILIT lets people eliminate proceeds by transferring ownership of the policy to the trust. ILITs must comply with IRS rules and need to be setup by a lawyer.
Trustors must be careful when establishing trusts to ensure they don't create tax ramifications. For instance, gift tax might be imposed against beneficiaries if the Trustee is not the same person as the Trustor.
It's always recommended to obtain legal counsel when setting up trusts. Otherwise, Trustors could unwittingly cause more harm than good. We encourage you to learn more about trusts and probate in our estate planning blog.
Published on June 05, 2012 at 02:51 AM