A trust agreement is part of the process of setting up a trust fund. The words “trust fund” often bring to mind images of the wealthy. However, a trust is just a legal tool used to reach specific financial goals. Different kinds of trusts accomplish different goals. Let’s look at what a trust agreement is and what it can do for you.
What is a Trust Agreement?
A trust is a legal framework that includes your trust agreement document and any assets you place in the trust. In a trust agreement, you distribute assets to beneficiaries however you choose. With certain kinds of trusts, you may be a beneficiary while you are living.
The trust agreement document also lays out how your assets will be distributed to heirs after you die.
Revocable Living Trust (RLT)
A common type of trust is called a revocable or “living” trust.
When you create the trust agreement for a living trust, you appoint someone as your trustee. The trustee will manage the trust once you pass away. However, while you are living, you can manage the trust yourself if you so choose.
The revocable living trust framework can hold any assets named to the trust, including homes, real estate, accounts, vehicles, and boats.
In the trust agreement, you write out how the assets will function while you are alive and what will happen in the event of your death. You can act as your own trustee and distribute your assets to yourself while you are living.
When you pass away, the appointed trustee distributes the trust in the manner you spell out in the trust agreement.
Why Establish a Trust?
With a Revocable Living Trust, you can reap many benefits without too much cost.
If You Become Unable to Make Decisions
None of us know when a medical event or accident may happen. If you end up in a coma in a hospital, who will care for your financial responsibilities or your pets? With a living trust, you can feel confident that your appointed trustee will manage your affairs if you become incapacitated and cannot make decisions for yourself.
If you develop a medical disease that causes incompetency, your trustee may also care for your estate while you are incompetent. Once you pass away, the terms of the trust change to what you desired for your assets after your death.
Control Your Asset Distribution
If you have a grandchild who repeatedly runs up credit card debt, you may hope he learns how to control his spending. A grown child with a gambling problem may also worry you. Even married children may cause concern if they are on the brink of divorce or even bankruptcy.
A trust can help prevent inheritance from being swallowed up by:
- Divorce court
- Bankruptcy court
- Crazy gambling
- Drug problems
- Wild shopping sprees
In your trust agreement, you can put in terms for each inheritance. For example, let’s say you want to leave $3000 to a granddaughter. However, you want her to receive $250 per month paid directly to her landlord for rent for one year. In that case, you can write the trust agreement to honor your wishes.
The trustee that you appoint is responsible for distributing assets in the way that you choose.
Special Needs Trusts
A trust can also work to give income slowly to someone with special needs who cannot receive a large inheritance without losing their benefits like health insurance or housing. A grandchild with autism who cannot hold a job may benefit from a small amount of income each month that does not exceed the eligibility limits for Social Security Disability benefits.
If you have a sister in a nursing home, you may choose to leave her your trust but distributed over several years so that she does not lose her Medicaid benefits for the nursing home.
Avoid Probate Court
Probate court is a public process, so if you value your privacy, a revocable living trust can help you accomplish anonymity in leaving your inheritance to loved ones.
A probate court can also raise expenses for your family after you pass away. Court fees and attorney fees can eat into their inheritance. If there are unhappy relatives or unscrupulous creditors, they can sue for more money.
The assets you place into a trust do not go through probate court. They are protected from the probate process.
However, a living trust does not protect your assets from creditors. The assets owned by the revocable living trust while alive are still subject to your personal liabilities, including nursing home expenses or Medicaid state recovery programs.
Other types of trusts, such as an irrevocable trust, can protect your assets from creditors. An irrevocable trust is a more complex type of trust that may not be changed or amended once established. You don’t have access to remove assets or change the trust agreement in an irrevocable trust.
We Can Help
If you’d like to maximize your legacy for your heirs, a trust can help you distribute assets well, avoid probate expenses and lost time, and prepare for unexpected medical events. A living trust is a legal framework that we at Hogan, Edwards, and Blue employ to help you plan for your future and that of your loved ones. We understand that your hard-earned income needs to work for your family. Contact us today and find out how we can help.