One of the most awkward things in life to admit is: “I don’t know what that word means.”
This can be especially true when meeting with an attorney – a professional you are now paying to explain basic terms when you’d rather be paying him or her to accomplish important goals for your family.
Before you step into a lawyer’s office to discuss estate planning and asset protection, you want to understand core concepts so that you don’t feel like you’re starting at point A when you’d rather have reached points D or E.
That’s why I’m going to share some basic definitions for Trusts, the differing kinds, and some related terms. I hope to create this as part of a series of entries that will become a reference for you when you have basic questions about estate planning and asset protection.
Let’s start with some essential concepts:
Trustmaker – This is you. You created the Trust and brought it into existence with your signature. You placed assets into the Trust for either your benefit and/or the benefit of your loved ones. This role is sometimes called a Grantor, Settler or Trustor. To keep it simple, my advice is call yourself the Trustmaker.
Revocable Living Trust (RLT) – This is a legal document that outlines the plans the Trustmaker made for his assets and family. The Trustmaker can amend or revoke this kind of Trust.
Irrevocable Trust – When a Trustmaker dies, his RLT automatically becomes an Irrevocable Trust, meaning its directives generally cannot be changed or revoked. A Trustmaker also can create an Irrevocable Trust during his life for many purposes, including reducing taxes, for gifting or asset protection.
Trustee – This person (or persons) manages the Trust and watches over the assets within it. Typically with a RLT, the Trustmaker appoints himself as Trustee. Upon the Trustmaker’s death, a Successor Trustee steps in and assumes management of the Trust.
Beneficiary – This person receives income or assets from the Trust. During the Trustmaker’s life, he can simultaneously be Trustmaker, Trustee and Beneficiary. After his death, the Beneficiary becomes whoever the Trustmaker named as such. Usually this will be a spouse or child, but it can also be a non-relative or charitable organization.
Lifetime Protective Trust – An inheritance left outright to a child in a Will can be attacked by creditors or lost through a divorce or personal lawsuits. Parents can place assets into this kind of Trust to prevent them from being seized or later subjected to the Federal Estate Tax on the child’s estate. This inheritance can be protected for successive generations.
A quick resource for Trust term definitions is FindLaw.com’s estate planning dictionary.
I hope this entry has helped you and your family. If there are other terms you’d like to see defined or explained, let me know. As always, if you have a question or concern about a specific case, please contact our office.
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