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What is a Trust?
A trust is a separate legal entity for
holding and investing property. One or more persons (the "trustee")
hold property, usually real estate or investments, for the benefit of
another or several other people (the "beneficiary"). The person who
gives the property for the trust is known as the "donor" or "grantor."
The trustee holds legal title or interest and is responsible for
managing, investing, and distributing the assets or property of the
trust. The beneficiary holds an equitable or beneficial interest.
What are the benefits of
establishing a trust ?
Depending on your situation, there can be several advantages to
establishing a trust. Most well known is the advantage of avoiding
probate. That is, in a trust that terminates with the death of the
donor, any property in the trust prior to the donor's death passes
immediately to the beneficiaries by the terms of the trust without
requiring probate. This can save time and money for the beneficiaries.
Certain trusts can also result in tax advantages both for the donor
and the beneficiary. Or they may be used to protect property from
creditors, to help the grantor qualify for Medicaid, or simply to
provide for someone else to manage and invest property for the grantor
and the named beneficiaries. Trusts are private documents and only
those with a direct interest in the trust need know of trust assets
and distribution. If well drafted, another advantage of trusts is
their continuing effectiveness even if the donor dies or becomes
incapacitated.
What kinds of trust are there?
There are several types of trusts, some of the more common of which
are discussed below:
Revocable Trust
A revocable trust is sometimes referred to as a "living" or "inter
vivos" trust. Such a trust is created during the life of the donor
rather than through a will. With a revocable trust, the donor
maintains complete control over the trust and may amend, revoke, or
terminate the trust at any time. So, the donor is able to reap the
benefits of the trust arrangement while maintaining the ability to
change the trust at any time prior to death. The disadvantage of a
revocable trust is that the trust assets are countable to the donor
for purposes of determining Medicaid eligibility.
Irrevocable Trust
An irrevocable trust is created during the life of the donor, who
thereafter may not change or amend the trust. Any property placed into
the trust may only be distributed by the trustee as provided for in
the trust instrument itself. For instance, the donor can provide that
he or she will receive income earned on the trust property. The
irrevocable trust where the donor retains the right to income only is
a popular tool for Medicaid planning.
Testamentary Trust
A testamentary trust is a trust created by a will. Such a trust has no
power or effect until the will of the donor is probated upon his or
her death. Although a testamentary trust will not avoid the need for
probate and will become a public document as it is a part of the will,
it can be useful in accomplishing other estate planning goals. For
instance, the testamentary trust can be used to provide funds for the
surviving spouse in a form that will not be considered available and
not have to be spent down if he or she should seek Medicaid
eligibility to pay for long-term care.
Supplemental Needs Trust
A supplemental needs trust can be created by the donor during life or
be part of a will. Its purpose is to enable the donor to provide for
the continuing care of a disabled spouse, child, relative or friend.
The beneficiary of a well drafted supplemental needs trust will have
access to the trust assets for purposes other than those provided by
public benefits programs. Thereby, the beneficiary will not lose
eligibility for benefits such as Supplemental Security Income,
Medicaid, and low-income housing.
How can I find out if I should have
a trust?
As with all estate planning, anyone considering a trust should contact
one of our attorneys who are skilled and experienced in this area.
 Ralph L. Montgomery, Jr.
- Member American Academy of ElderLaw
Attorneys.
DALE WOODARD LAW FIRM
1030 Liberty St.
Franklin, PA 16323
Phone 814-432-2181
Fax 814-437-3212
www.dalewoodard.com
montgomerylaw@csonline.net
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