When it comes to estate planning, having a trust in place can be a powerful planning tool that can provide a number of benefits. A trust is a legal arrangement where a person, known as the grantor (or settlor), transfers their assets to a trustee who manages those assets for the benefit of one or more beneficiaries. The trust document outlines the specific terms, conditions, and instructions regarding how the assets are to be managed and distributed. Common purposes of trusts in North Carolina include probate avoidance, privacy and control, special needs planning, asset protection, and charitable giving.
Depending on the purpose of the trust, there are several types of trusts that can be prepared to achieve the desired outcome. This blog focuses on two common types of trusts: revocable living trusts and testamentary trusts. While both serve to manage and distribute assets, they have distinct characteristics and purposes.
Revocable Living Trusts (RLT)
A revocable living trust (also known as a living trust or inter vivos trust) is created during your lifetime and can be amended or revoked during your lifetime. RLTs offer flexibility to the grantor to add or remove a property to the trust and specify the manner in which they wish the assets to be managed or distributed. By properly transferring assets to a trust, you can avoid the administrative burden of the probate process, which is the court-supervised administration of an individual’s estate. Avoiding probate can eliminate court costs, fees associated with estate administration, procedural hurdles, and delays. In addition, RLTs keep information about your estate and the distributions to remain private, unlike a Will alone. Since trust assets do not go through probate, the details remain out of the public record.
A testamentary trust is established in your Will and only takes effect upon your death and according to the terms provided within the trust. Testamentary trusts are often used as a tool to protect minor children from inheriting at too young of an age and provide a way to specify considerations before inheritances are distributed. Although an RLT can accomplish anything that a testamentary trust can accomplish, some individuals opt for the simplicity of a testamentary trust within their Will. However, testamentary trust assets will be subject to probate, unlike assets under RLTs.
As with any estate planning document, the right option for you is highly circumstantial and should be discussed with an experienced attorney who can help you navigate and understand different planning options and what best suits you and your family’s needs. By understanding the purposes of trusts, individuals can tailor their estate plans to meet their unique needs and objectives. With careful planning and the right legal advice, trusts can become powerful tools in securing one’s financial future and leaving a lasting legacy for loved ones and charitable causes.