What is a Trust?

When a lot of folks come around to the idea of getting an estate plan, they are often looking for a way to leave gifts to their loved ones while also limiting the wait times, taxes and fees often associated with these gifts. Trusts are one of the most well used tools to accomplish that goal. When you create a will you must go through a process called probate in order to legally transfer ownership or otherwise put the directives of your will into effect. The root of the word probate comes from the latin verb “probare” which means to test, to try, to prove, or to examine. Later, and in Middle English, the word became “probatum” which has the definition of “having been proved”. What all of this means is that probate is the process by which it is proved that your will is what you wrote, what you wanted, and untampered with. In order to probate your will, the American legal system has created a series of courts, often called probate courts, who handle these types of cases. Usually there are court fees that must be paid and the government, if your estate is valued over a certain amount, will require taxes to be paid before any distributions take place. Trusts quite often eliminate the need for probate, which reduces the fees, sometimes the taxes, and also the waiting time for your loved ones and charities to receive what you left them upon your death. A Trust is a financial account that you can transfer ownership of your personal and real property into, turning the trust into the “owner” of those things. However, you as the creator of the trust, also called the Settlor, will become its first Trustee. As Trustee you continue to be able to make decisions about the property and have access to it. There may be a few legal instances where a little more paperwork is required but ultimately you still function as though you are the legal owner of everything within the trust. When you die, then your successor trustee, the person you have named to succeed you as trustee, will have the authority to manage the property for the benefit of those who will inherit whatever is inside of the trust. The theory behind trusts is simply: because the trust is governed by the documents you used to create it, which are self authenticating, the need for probate court is removed. There are lots of great reasons for using a trust, yet there are some things that trusts cannot do. In my next post we’ll get into some of the pros and cons of Trusts.