If you’ve heard people talk about setting up a trust, you may wonder what it is and if you need one. I do not decide for you whether you need a will based estate plan or a trust based estate plan. At my office, our role is to explain the benefits and drawbacks of these planning tools. We work with you to find the ones that fit into your plan. I can even help dispel some myths or misunderstandings about trusts.
That said, a trust is used to manage and distribute your assets in an efficient manner. Think of it as a way to take control of what happens to your property, money, and other valuables—both while you’re alive and after you pass away. While trusts are often associated with wealth, there is no minimum level of assets to benefit from a trust, nor is there a requirement to utilize a trust for large estates if the client determines the complexity outweighs their desired benefit. Trusts help people from various backgrounds and financial situations.
A trust is used by people who want more control over their assets and value privacy. In North Carolina, for example, many people use trusts to avoid probate, a public court process that directs a person’s estate after they pass away. While probate is not incredibly complicated in North Carolina, it is a public filing so anyone can see your will and list of assets filed with the probate court. Your probate notice will be published in the local newspaper. With a trust, however, the details of your estate remain private. Probate general extends over several months and usually one full year. The Clerk requires that you wait several months to see if any unknown creditors show up with a claim against the estate assets. The trustee who follows after your death determines the pace of administration privately. The successor trustee may distribute assets immediately. Below, we will look at some reasons to consider a trust and explain the main types of trusts you may encounter.
Reasons Why People Create Trusts
Some people prefer to handle their affairs privately, and a trust offers that advantage. When you set up a trust, your assets move directly to the people or organizations you have chosen without going through the public probate process with the Clerk of Court. This saves time, offers privacy, and gives you peace of mind.
A trust is also helpful for families with minor children or dependents. It dictates how and when your assets are distributed, allowing you to set specific terms and rules. A trust may also help when managing property, investments, or other financial accounts that need clear direction. For example, if you want to leave instructions about how your assets should be used for education, healthcare, or other purposes, a trust allows you to set these terms in as much detail as you prefer.
Think of Each Type of Trust as a Bucket
Trusts are divided into two main categories: revocable and irrevocable. There are different types of trusts to choose from, and each works like a bucket you can fill with specific assets. Think of each trust as a separate “bucket” with rules and purpose. When you have an revocable trust bucket, you’ll have control during your lifetime and a manual explaining what happens to your assets when you die. However, with an irrevocable trust, once your assets go into it, you seal it and give away the key to someone else to be the manager of those assets.
Irrevocable trusts are more permanent; once you place assets into them, those assets are typically no longer under your direct control. Irrevocable trusts therefore are not as widely used. North Carolina does not recognize domestic asset protection trusts so we do not use an irrevocable trust to protect assets from creditors. Irrevocable trusts may afford some protection from a medicaid reimbursement lien if the assets were put away longer than a government imposed look back waiting period.
Revocable trusts—which are also commonly referred to as living trusts—allow you to add or remove assets, adjust the instructions, or even close the trust if needed. This bucket also comes with a manual, but the main benefit is that you can put assets into it and take them out. Because you can name yourself the trustee, you also hold onto the key.
Once you set up a trust, you must ensure your assets are placed in the “bucket.” This step, called funding the trust, is necessary because only the assets in the trust are controlled by it. If you acquire new assets, such as a home, you must remember to title that asset in the name of your trust if you want it covered by its terms.
Schedule a Consultation
One of the reasons why people choose to work with us is we understand that setting up a trust is only the first step. Funding your trust and titling your assets appropriately is the second one. When you work with us, take comfort in knowing that we will help guide you through both steps and not simply leave you to perform this unfamiliar task on your own.
If you think a trust might be a good option for you, or if you have questions about how it might work with your estate, talk to an experienced estate planning attorney. I can answer your questions and help you decide if a trust suits your needs. Schedule a consultation today to learn more.