For most people, a Last Will and Testament serves as the cornerstone of their comprehensive estate plan. A Will, however, is not usually sufficient, by itself, to achieve all of your diverse estate planning needs and objectives. As a result, most estate plans also include additional estate planning tools and strategies, such as a trust. In fact, a trust is one of the most common additions to a well-rounded estate plan. Only your Illinois estate planning attorney can help you decide if a trust is right for your specific estate plan. It may be beneficial to you, however, to learn what a trust is and how one might fit into your estate plan.
What Is a Trust?
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. A beneficiary can be an individual, an organization, or even the family pet. In addition, a beneficiary can be a current beneficiary or a future beneficiary.
Testamentary vs. Living Trusts
Trusts can be broadly divided first into two categories – testamentary and inter vivos (more commonly referred to as “living”) trusts. A testamentary trust is one that does not take effect until the death of the Settlor, usually triggered by the Settlor’s Last Will and Testament. A living trust, as the name implies, is a trust that takes effect as soon as all formalities of creation are in place and the trust is funded.
Revocable and Irrevocable Trusts
Living trusts can be further divided into revocable and irrevocable living trusts. A revocable living trust is one that can be revoked or modified by the Settlor of the trust at any time and for any reason, or even without giving a reason. An irrevocable living trust, on the other hand, cannot be modified or revoked for any reason by the Settlor. Typically, only a court can modify or revoke an irrevocable living trust, and even then only with good cause. Because a testamentary trust is triggered by a Will, a testamentary trust remains a revocable trust until the trust actually activates upon the death of the Settlor, at which point it becomes an irrevocable trust.
How Does a Trust Fit into an Estate Plan?
A trust can be used to fulfill a wide variety of needs and objectives within an estate plan, including:
- Incapacity planning – a revocable living trust allows you to appoint a successor Trustee to take over from you in the event of your incapacity, thereby creating your own incapacity plan.
- Probate avoidance – assets held in a trust are not required to go through the probate process, meaning beneficiaries receive their gifts much sooner after you are gone.
- Medicaid planning – If you ever need Medicaid to help cover the high cost of long-term care, your assets could prevent eligibility unless they are already in a Medicaid trust.
- Parents of minor children — you minor child cannot inherit directly from your estate; however, your child can receive the benefits of assets held in trust for him/her.
- Special needs planning – if you have a child (or grandchild) with special needs you may wish to contribute to the child’s care and maintenance; however, doing so can create a problem
Now that you have a better idea of what a trust is and how a trust might be used in your estate plan, it might be time to sit down with your Illinois estate planning attorney and discuss whether or not it is time to include a trust in your overall estate plan.
If you have additional questions or concerns regarding trusts and how one might fit into your estate plan, contact the experienced Illinois estate planning attorneys at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.