End-of-Life Management Workshop #7: Forming a Trust 101

End of Life Management Workshop #7:

Forming a Trust 101
©2013 Passare Inc. All Rights Reserved

The best way to find out if you
can trust somebody is to trust
them.
Ernest Hemingway


What is a Trust?
• A trust agreement is simply your written
instructions directing someone (the
trustee) on how to manage your property
(the corpus) for the benefit of your heirs
(the beneficiaries).


What is the Purpose of a Trust?
A trust commonly solves two issues that
arise in estate planning:
• Avoiding probate and
• Leaving assets to minors


Types of Trusts
Trusts can be categorized in several
different ways:
• Living versus testamentary
• Revocable versus irrevocable
• Funded versus unfunded
• Self-trusteed versus third-party trusteed


Comparing Trust Types
Living Trust
• It can be created by a person during his or
her lifetime
• It may be used to implement estate tax
planning techniques that shelter assets
from the federal estate tax with a credit
shelter trust


Testamentary Trust
• It can be created after death through
provisions in a decedent’s last Will and
Testament
• It may be used to implement estate tax
planning techniques that shelter assets
from the federal estate tax with a credit
shelter trust


Revocable Trust
• It can be modified or even completely
revoked by the person creating the
document.
• It is a flexible tool for estate planning because
the settlor can change the terms of the
revocable trust to meet the needs of the
evolving family.
• A common advantage is that the assets in the
trust avoid probate, while the settlor retains
control over the property.

Irrevocable Trust
• It cannot be changed after it is created.
• Since it cannot be changed, it is critical that the
language
• of the trust does what you want it to do before it is
signed
• and funded.
• Normally, the creation and funding of an irrevocable
trust
• is a taxable event.
• Irrevocable trusts are used to remove assets from a
• settlor’s estate through transfers of insurance or other
• property for the beneficiaries, who are usually younger
generation family members.
• In some circumstances, an irrevocable trust may also
be used to insulate assets from creditor liability.


Funded verses Unfunded Trusts
Funded Trust
• A funded trust has assets beyond than the nominal
$1.00 titled in the name of the trust.
• Revocable trusts can be funded with assets any
time.
• There are varying reasons to fund a trust during
life, rather than waiting to fund the trust through
provisions in your will.
• For example, an individual may fund a trust if they
want the trustee to manage the assets placed into
the trust.
• Self-trusteed trusts are funded if the settlor (who is
also the trustee) wants to avoid the probate
process to transfer those assets at the death of
the settlor

Funded verses Unfunded Trusts
Unfunded Trust
• An unfunded trust is a trust with some
nominal property typically $1.00 as its assets;
since some type sort of corpus is typically
required to have a valid trust.
• Unfunded trusts become funded when a
decedent dies and the property passes to the
trust through the will.
• The property that is ultimately transferred into
the trust must first pass through the probate
process to get into the trust.

Self-Trusteed verses Third-Party Trusteed Trusts
Self-Trusteed Trust
• A self-trusteed trust is a trust with the settlor also
serving as the initial trustee
• This permits a person to create a trust and fund it
wit assets, while not having to give up control over
those assets.
• A self-trusteed trust document typically provides
that upon the death, resignation, or incapacity of
the settlor / initial trustee, a successor trustee
takes over
• Self-trusteed trusts are funded if the settlor (who is
also the trustee) wants to avoid the probate
process to transfer those assets at the death of
the settlor

Self-Trusteed verses Third-Party Trusteed Trusts
Third-Party Trusteed Trust

• A third-party trusteed trust is a one that is
created with someone other than the
settlor, such as another individual, or, a
corporate entity, such as a bank trust
department, as the trustee.
• This independent, third-party trustee is
charged with the fiduciary responsibility of
managing the trust for the benefit of the
beneficiaries

How Trusts Work
• Trusts are governed by the directions set
forth in the trust agreement
• The settlor (creator) of the trust, provides
the rules that the trustee will follow.
• The settlor creates the trust by signing a
valid trust agreement, and then adding
minimal amount of assets into the trust
corpus.

Summary of Trust Benefits
Trusts can be categorized in several
different ways, including:
• Living verses testamentary,
• Revocable verses irrevocable,
• Funded verses unfunded, and
• Self-trusteed verses third-party trusteed
trusts.


There’s MORE!
1.
2.
3.

See an Example of an Living Trust
Get a Full Living Trust Checklist
Glossary of Trust Terms

Download Our FREE
Estate Plan – The Basics - eBook
Get Your FREE eBook

Sources:
http://www.shepardestateplanning.com
http://www.ycollaborative.com/blog/
http://www.frenchfunerals.com
http://www.passare.com


End-of-Life Management Workshop #7: Forming a Trust 101

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End-of-Life Management Workshop #7: Forming a Trust 101