A trust is a simple concept – imagine a pot of money. The person who puts the money into the pot is called the grantor. The person who is in charge of distributing the money is called the trustee. And the person who will actually receive the money is called the beneficiary. Once you have these three elements, you have a trust. Notice that the money in the pot is separated from that of either the grantor or the trustee. However, the grantor can be (and often is) the trustee.
Trusts come in two forms: a living trust (created by the grantor while they are alive) and a testamentary trust (created as part of a will). Living trusts can be either revocable or irrevocable.
Property that is in a revocable trust when a grantor dies is not part of the probate estate (because title has already changed), but it is part of the grantor’s taxable estate (because they retained control and could have changed it). Property that is in an irrevocable trust is neither part of the probate estate nor included in the taxable estate. However, irrevocable trusts cannot be changed, so they are much less flexible instruments.
The probate process in South Carolina is not particularly complex or difficult, so there is no reason to devise an estate plan merely around avoiding probate. Also, having a trust does not avoid the need for a will. This is because a will may be needed to “mop up” distribution of assets that were omitted from the trust. On the other hand, a trust is like a tool that has many diverse uses. Parents of young children may wish to establish a testamentary trust to receive proceeds of their estate or life insurance, thus enabling a trustee to care for the needs of their children without court appointment of a custodian of the funds. Trusts can also be used to direct or control funds for other special uses, for instance to care for a special needs child, to put some limits on control of property for a period of time, to postpone ultimate division of beneficial interest in property until a certain event has occurred, or to provide for health care or education. Elderly persons who have too much income to qualify for Medicaid but too little income to pay for long term care may also wish to consider creation of another, special type of trust so that they can become eligible for Medicaid.
While trusts are more complex to create than simple wills, the idea is that “a stitch in time saves nine.” Although costs of administration must also be considered, trusts can be effective and useful tools to achieve important goals. A good estate plan will (ideally) save expense in the long run, preserve assets, preserve family relationships, and will make things work more smoothly for your heirs and beneficiaries down the road. A decision about whether a trust is appropriate should be considered as part of your overall estate planning consultation.*
*This blog post is for information only! Specific information about trusts (and legal advice about whether a trust is needed in your case) must be based on an individual consultation with an attorney of your choice. While Skinner may help with this type of planning, the only way Alexandria Skinner creates an attorney-client relationship is through a written agreement after an in-person, individual consultation. Nothing on this web site is to be construed as creating an attorney client relationship. However, if you are interested in scheduling a consultation, feel free to call 803-414-0185.Social tagging: estate planning > living trusts > trusts