A Beginner’s Guide to Trusts in Estate Planning

Disclaimer: This article on estate trusts is intended for the purposes of providing information only. It is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

We have talked about estate planning, estate planning for blended families, your powers of attorney and your will. Now it’s time to talk about trusts. In this beginner’s guide, we’ll explain what trusts are, how they work, and their use in estate planning.

What is a Trust?

Trusts are the unsung heroes of estate planning. They can be used to pass on assets, manage those assets, determine how they are distributed and much more.

A trust is a legal entity that allows someone (the settlor) to transfer assets to a trustee. The trustee holds the assets for the benefit of one or more beneficiaries. They have legal ownership of the assets, but the beneficiaries have an equitable interest in the assets. The trustee is responsible for managing the assets and distributing them according to the terms of the trust.

Depending on the tax considerations and other factors, the settlor and trustee may be the same person. Additionally, either or both could also potentially serve as beneficiaries in certain cases.

How are trusts created?

There are two broad categories of trusts. Trusts can be created during the settlor’s lifetime (an inter vivos or living trust) or when they die (a testamentary trust).

The terms of a living trust are typically set out in a document that the settlor signs. It appoints a trustee (or trustees) and directs how assets should be held, managed and distributed. An inter vivos trust is created once you determine the terms of the trust and the beneficiaries, and property has been transferred to the trustee to hold in accordance with the terms of the trust.

A testamentary trust, on the other hand, is created once someone has died. It can be created pursuant to a will. It can also be created pursuant to a beneficiary designation made under an insurance policy, a registered retirement savings plan or a registered retirement income fund. The important thing is that a testamentary trust comes into existence when the settlor dies.

The trustee’s role

The role of the trustee in an estate planning trust is a critical one. The trustee is responsible for carrying out your wishes and managing and distributing the assets according to the terms that you have outlined. As such, it’s important to choose a trustworthy and capable individual or organization as your trustee.

The trustee’s primary responsibility is to manage and invest any assets placed into the trust. This includes making sure that all taxes due on income generated from those investments are paid on time, as well as properly filing any necessary tax returns related to them. 

Depending on how they’re structured, the trustee may also have to make distributions at certain times or under certain conditions. The trustee has an obligation to exercise reasonable care when managing these assets and to act in the best interests of the beneficiaries.

Many of the same principles that we spoke about with regard to choosing an executor also apply here. When selecting a trustee, you should choose someone you trust and who is capable of carrying out their duties. Additionally, if you plan to have your spouse or another individual serve as a trustee, it’s important to also name one or more successor trustees, just in case.

Set up your estate planning with Beekmsa Law

At Beeksma Law, we believe that trusts do not get the attention they deserve. We are experienced in helping our clients create trusts that will protect their assets and carry out their wishes, both during life and after death.

We know how important it is to plan ahead. You have to do so to protect your hard-earned assets, provide for those you love, reduce taxes and make sure your wishes are followed. Whether you’re considering setting up a living trust, a testamentary trust or any estate planning tool, we can help. Contact us today to get started!