Most people start off their estate plan with fairly simple goals that can be accomplished using nothing more than a Last Will and Testament. That plan, however, will likely need to be reviewed and expanded upon as the family and the estate grow over the years. If you find yourself in a position where it is time to expand upon your basic estate plan, you may be considering the addition of a trust as part of that expansion. If you will be creating a trust for the first time, it is important for you to learn as much as possible about how a trust works and how one might fit into your estate plan before you decide if a trust is right for you and your estate planning needs. To help you get started learning about trusts, the Waukegan trust administration attorneys at Hedeker Law Ltd. explain some trust basics.
The Elements of a Trust
At its most basic, a trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also referred to as a Grantor or Maker, who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. Trusts have evolved to the point where there is a specialized trust to help further almost any estate planning goal; however, all trusts require the same five elements for creation, including:
- Settlor – the person who creates the trust. A Settlor may also be referred to as the Grantor or Maker of the trust.
- Trustee – an individual or entity that administers the trust terms as well as manages and invests the trust assets.
- Beneficiary – a beneficiary is a person, entity, or even family pet that receives the benefit of the trust assets. A trust may have both current and future beneficiaries.
- Terms – created by the Settlor and may be anything that is not illegal or unconscionable.
- Funding – almost anything of value can be used to a fund a trust, including cash, securities, and real property.
Testamentary vs. Living Trusts
All trusts fit into one of two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust activates during the Settlor’s lifetime.
Revocable vs. Irrevocable Trusts
Living trusts can be further sub-divided into revocable and irrevocable living trusts. If the trust is a revocable living trust, as the name implies, the Settlor may modify or terminate the trust at any time and for any reason. An irrevocable living trust, on the other hand, cannot be modified or revoked by the Settlor at any time nor for any reason once active. It may be possible to modify or terminate an irrevocable living trust by agreement of the beneficiaries and/or by court order, but never by the Settlor. Testamentary trusts are always revocable.
How Do I Modify a Trust?
A trust is established by creating a Trust Agreement. If you wish to make changes to the trust agreement you may do so in one of two ways. The first is by using a Trust Amendment. A Trust Amendment should only be used if you are making relatively minor changes and the Trust Agreement has not been modified numerous times already. A Trust Amendment is a document that you attach to the original Trust Agreement that includes the changes you wish to incorporate into the trust. If you wish to make more significant changes, or the trust has already been amended before, you may need to use a Trust Restatement. A Trust Restatement essentially requires you to rewrite the original Trust Agreement in its entirety, incorporating the changes you wish to make into the Restatement. You may be wondering why you should use a Restatement instead of just starting over with a new Trust Agreement? Because if you start over, you must officially revoke the original trust. That requires you to remove all trust assets from the original trust and then transfer them into the new trust. That transfer of assets could have significant, and costly, tax repercussions.
Contact Waukegan Trust Administration Attorneys
For more information, please download our FREE estate planning worksheet. If you have additional questions or concerns regarding trusts or trust administration, contact the experienced Illinois trust administration lawyers at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.