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Trusts. What Are They Anyway?

Trusts. It’s a word that gets thrown around a lot when it comes to estate planning. You might have heard things like, “everyone needs a trust” or “have a trust to avoid probate”. Neither of those things are very accurate. And I’ll cover why. But, before I do that, we need to talk about what they are.

 

Trusts are a relationship in ownership. When you own something, you both control the thing you own and you enjoy the benefits of it.

You’re wearing a single hat. That’s how most of us own most of our stuff. We decide what to do with it and enjoy any benefits of it.

In contrast, a trust separates control and benefit. The person who controls the asset is the trustee and the person who receives the benefit is the beneficiary. Now there are two hats.

The rules on how a trustee can control and how the beneficiaries well, benefit are laid out through the trust document. Although a trust isn’t an independent “thing”, like a business, the relationship and the rules created by the trust document can act like a basket.

 

Whatever is given to the trustee, when they’re wearing their “control” hat, is governed by the terms of the trust. Since the trust can survive the person who created it, the trust can say what happens to the assets in the basket after the death. The benefits of the assets and the control of the assets are resolved. Automatically. Assets held in trust are a Thing 1 asset. They don’t hit your estate, so they can continue to be controlled and the benefits given out, even after you die.

Trusts can avoid probate, but that ONLY APPLIES TO THE THINGS HELD IN THAT BASKET.

Have a house in your name? Not in the basket.

A car in your name? Not in the basket.

And on and on.

It can be a tool to avoid probate if the likely costs of probate are higher than the set up and administration of the trust. But the ASSETS HAVE TO BE IN THE BASKET, meaning they’re held by the trustee in accordance with the trust rules… or at least that they set up to transfer automatically.

There can be other reasons for a trust. A trust can govern how multiple people own an asset together. It can put an adult in charge of money to benefit children. It can provide tax savings.

Watch for future posts, where I’ll get into different types of trusts. This week, look for a new podcast episode. I’ll finish the two-parter with the second reason why we avoid organizing our legal affairs… we have to deal with a lawyer. In the meantime, listen to the first part, where I talk about our collective hang up with death.

Check out the podcast on the sidebar, Spreaker or Itunes. Subscribe and if you like what you hear, rate it. Like, share and pin if you’ve learned something new.

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9 Comments
  • Pingback:Automatic Transfers. – An Organized (after)Life
    Posted at 20:53h, 13 June Reply

    […] week, I talked about trusts. They’re rules of ownership and act like a basket to hold whatever assets are owned in trust. […]

  • Pingback:Your Lawyer Is Your Coach. – An Organized (after)Life
    Posted at 21:21h, 31 July Reply

    […] determining whether the drawbacks of having a trust are worth it to you. It’s figuring out if automatic transfers will work as smoothly as hoped. […]

  • Pingback:Location Matters. – An Organized (after)Life
    Posted at 21:27h, 22 August Reply

    […] you ever heard things like “everyone needs a living trust” or “everyone needs to avoid probate“? Maybe. It depends on how things play […]

  • Pingback:Probate Terms – An Organized (after)Life
    Posted at 22:12h, 29 October Reply

    […] Trust: unlike simple ownership where benefits and management stay with the owner, a trust is a set of rules where an owner of an asset separates management from the benefits. The rules of the trust only apply to assets that are specifically governed by the agreement and are typically non-probate assets. […]

  • Pingback:Estate Planning When People Depend On You – An Organized (after)Life
    Posted at 20:48h, 28 August Reply

    […] upon your death and only if your children are under a particular age when you die. Remember what a trust does. It separates control and benefit. EXACTLY what you need to happen with your money if you die […]

  • Pingback:Free Free Free. - An Organized (after)Life
    Posted at 15:18h, 24 November Reply

    […] This sheet lists the types of ways you can own an asset that makes it a non-probate asset. Things like owning a life insurance policy, but listing your spouse as a beneficiary. Or owning real estate together with someone as a joint tenant. Or putting the asset into a trust. […]

  • Pingback:Michael Jackson Estate and Trust Funding - An Organized (after)Life
    Posted at 16:56h, 28 February Reply

    […] Learn more about trusts here. […]

  • Pingback:Organized After Life | Michael Jackson Estate and Trust Funding
    Posted at 12:41h, 25 June Reply

    […] Learn more about trusts here. […]

  • Pingback:What Estate Planning Do I Need? - Organized After Life
    Posted at 23:17h, 29 November Reply

    […] Now let’s talk about the the asset thing when you die. I own a car. When I die, where is that car supposed to go? Who’s supposed to get it? And how does it get there? Is it stuck in my name? Does it get to them automatically? If it’s stuck in my name, it’s a probate asset. My car will have to go through some sort of legal process to get to the person it’s supposed to get to. Maybe I own it together with my spouse and it automatically goes to them because of what the car title says. Or maybe my strategy includes a set of rules through a trust. […]

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