We often get clients who say, “I’d like to set up a Trust.” Yet, what type of trust you want to set up will depend on your situation.
One big advantage of most Trusts is they can help your heirs avoid probate court and, in many instances, can help keep your affairs private. Many trusts are not part of the probate court system and never become a matter of public record.
5 Common Types of Trusts in Missouri are:
- Testamentary Trusts. Testamentary Trusts have no power or effect until the Will of the deceased is probated. Although a testamentary trust will not avoid the need for probate and will become a public document as part of your Will, it can be useful in accomplishing many estate planning goals. The most common use we see of these are where individuals want an inexpensive estate plan with provisions for minor children.
- Revocable Trusts. Revocable Trusts are often referred to as “Living Trusts” because they are created while you are alive. Revocable Trusts are the most popular type of Trust. With a revocable trust, the person establishing the trust (this person is known as the grantor, trustor, or trustmaker) maintains complete control over the trust and may amend, revoke or terminate the trust at any time. Revocable trusts are generally used for asset management, probate avoidance, and some tax planning.
- Protection Trusts. Sometimes called a Medicaid Asset Protection or MAP Trust. Protection Trusts are crafted for a specific purpose, to protect the property inside (often a home, real estate, or farm land) from creditors and/or nursing homes. Because of its ability to protect real estate and other assets, Protection Trusts are becoming more and more popular, especially for individuals who do not have long-term care insurance.
- Supplemental Needs Trusts. Supplemental Needs Trusts are often called Special Needs Trust. They enable the donor to provide for the continuing care of a disabled spouse, child, relative or friend while allowing the beneficiary to also receive public benefits.
- Pet Trusts. More and more, clients are telling me they want a plan that ensure their pets will be well taken care of following their death. The Uniform Trust Code contains specific provisions allowing trusts to care for your pets after your death.
At its heart, a revocable living trust is an agreement. Revocable means that the agreement is able to be revoked or amended during the Grantor’s life. Living means that the agreement is made while the individual is alive, as opposed to a testamentary trust which is made through a deceased individual’s Will.
The trust agreement has at least 3 parties:
- The Grantor (aka Settlor, aka Trustor, aka Trust Maker): The Grantor is the person who creates the trust agreement. The Grantor is also typically the person who places assets (money, property, real estate) in the trust. In practice: When a husband and wife come in and ask for a trust, both husband and wife are typically Grantors.
- The Trustee: The trustee is the person who actually holds the trust property and manages it. In designing the trust agreement, the Grantor decides who the initial and successor trustees will be. The most important qualification for a trustee is… someone that you trust! In practice: In the trust described above, typically both husband and wife are initial Trustees. Then they would name a child, children, or other trusted individual as successor trustees.
- The Beneficiary: The beneficiary is the person, persons, or organizations that will receive the income and principal from the trust. In practice: In the trust described above, typically the surviving spouse is the first beneficiary, with the children named as beneficiaries upon the death of the surviving spouse. Distribution to the children can be tied to the child’s age, educational pursuits, or other criteria.
Creating the trust can be divided into 2 parts:
- Part One consists of designing the trust agreement so it meets the Grantor’s goals. Some common goals include: avoiding probate, offering remarriage protection, offering creditor protection (spendthrift protection) to beneficiaries, providing for a child or grandchild’s education, making distributions at certain ages (rather than having a child receive a large lump sum at age 18, it is common to customize distributions to that children receive money periodically as they mature. For example: 1/3 at age 21, 1/3 at age 25, and 1/3 at age 30).
- Part Two consists of ensuring that your property is transferred to your trust, a process we call funding the trust. Often you will want to transfer your real estate, vehicles, bank accounts, personal property, etc.. to your trust. Ensuring your trust is fully funded is the best way to ensure your loved ones can avoid the time and expenses of probate court.
The Missouri Bar advises clients that, “You should never sign a revocable living trust document without the advice of a Missouri attorney who practices in this field of law.” When choosing an attorney, ask them how much of their time they spend practicing estate planning. There are only a few of us in the Cape Girardeau area that practice primarily in estate planning.