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A trust is a legal arrangement in which certain property or assets, such as bank accounts, real estate, investments and valuable personal property, are held by a person or entity for the benefit of your loved ones. Many assume that trusts are only for the rich, but there can be significant benefits, even for those with moderate wealth. At Viloria, Oliphant, Oster & Aman, L.L.P., we can help you set up a trust, whether it’s a testamentary or living one, to ensure your assets are protected.
Why Create a Trust Instead of a Will?
The two main advantages of a trust over a will include avoiding probate and ensuring privacy. A will has to go through probate, which is the lengthy and painstaking legal process used to value your estate, settle your debts and transfer assets to your heirs. Probate costs money and can take anywhere from nine months to several years to end. Another benefit is privacy. A will is a public document that anyone can see, while a trust is private and generally more difficult to challenge.
To create a trust, as the property owner (also called the trustor), you must transfer legal ownership to a person or institution (known as the trustee) to manage that property for the benefit of another person(called the beneficiary). A fiduciary relationship is created, which means the trustee must act solely in the best interests of the beneficiary when dealing with the trust property. If the trustee does not live up to this duty, they may be legally accountable for any damage to your interests. You may also act as the trustee yourself, since you do have to pay a third-party for managing your property.
Different Types of Trusts
Trusts fall into two broad categories: testamentary and living trusts. A testamentary trust transfers property into a trust only after your passing. Many people prefer to include this type of trust into their will to reinforce their preferences after death. In it, you can spread payment of benefits over a period of time instead of making a single gift as you would in a will.
A living trust starts during your life, but may be designed to continue after your passing. This type of trust may be “revocable” or “irrevocable.” If you choose a revocable living trust, you can change the terms of the trust at any time during your life. Usually, a revocable living trust acts as a supplement to a will, or as a way to name another trustor if you become incapacitated. An irrevocable living trust, on the other hand, permanently relinquishes your right to make changes after a trust is created.
For those with more complicated estates, other types of trusts can be prepared to meet your needs, including, special needs trusts, education trusts, charitable lead trusts, trusts for pets, gun trusts, dynasty trusts and more.
Transferring Assets & Avoiding Probate
Probate is one way your assets are redistributed after you die. Unfortunately, since this involves a court review, it can result in expensive fees. Irrevocable trusts transfer assets after death and thus avoid probate. However, you can also avoid probate with a revocable trust, since you own no assets at death, therefore they don’t have to be transferred through probate. Trusts avoid probate only if all or most of your assets have been transferred to the trust while you were alive. If some assets have not been transferred, there is something known as a “pour-over” will, which specifies that at death, all assets not owned by the trustee will be transferred to the trust.
Beginning a discussion about your trust as soon as possible helps you develop a long-term plan for your finances. Contact our Reno estate planning attorneys at Viloria, Oliphant, Oster & Aman L.L.P. to discuss your options today.
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