Question #1 - What are the benefits of a revocable trust?
There are two main benefits of using a revocable trust. First, a revocable trust allows you to keep your estate private. Your trust is a private contract between you and your trustee, and doesn’t need to be filed with any South Dakota court. Second, a revocable trust allows you to avoid probate. This is often the most recognized benefit of a revocable trust.
Question #2 - What are the benefits of an irrevocable trust?
Irrevocable trusts offer many advantages that revocable trusts do not. First, many irrevocable trusts pay income tax as a separate entity. Because the grantor often does not pay personal income tax on this trust income, a grantor can, in some cases, use an irrevocable trust to move down to a lower tax bracket. Second, unlike revocable trusts, a grantor can normally use an irrevocable trust to protect assets from creditors. Third, property that you place in an irrevocable trust is no longer considered part of your estate, meaning that the property typically isn’t included in your estate’s value when it comes to determining estate taxes.
Question #3 - How does a trust avoid probate?
Because the grantor does not own any property in his individual name after the assets have been funded into the trust’s name, when he dies, the trust assets won’t need to be probated. In other words, when the grantor dies, the trust will continue to live on and the trustee will have the legal authority to take over under the trust’s terms.
Question #4 - What does “funding a trust” mean?
When you “fund a trust” it means that you take assets that are titled in the grantor’s individual name (or in joint names with others) and re-title the assets in the name of the trust. You may also “fund a trust” by taking assets that require a beneficiary designation and name the trust as a beneficiary.
Question #5 - Why is “funding” my trust important?
The primary goals of “funding” a trust is to make sure that the grantor’s property is managed by the trust’s terms. If you don’t “fund” your trust, assets held outside the trust cannot be managed by the trustee. Also, assets that haven’t been re-titled in the trust’s name will have to be probated at your death. This defeats one of the primary purposes of creating a trust – to avoid probate.
Question #6 - Whom should I name as my revocable trust’s trustee?
Any competent adult can be your trustee. Usually, you name yourself, or you and your spouse, as the trustee because you want full control of the property while you're alive. However, other people may select a friend, relative, or financial institution to serve as trustee. If you choose one individual as a trustee, you also should name a successor trustee (a second person or a corporate trustee). The successor trustee can act if the first trustee dies or is unable to continue as trustee. Of course, it goes without saying that anyone you select as trustee should have good judgment and the ability to carry out these important duties, including managing your property, paying out income from your trust to the beneficiaries, and distributing property to your beneficiaries after you die.
Question #7 - Whom should I name as my irrevocable trust’s trustee?
Under an irrevocable trust, the grantor should not name himself as the trustee. However, just like naming a revocable trust’s trustee, any competent adult can be your irrevocable trust’s trustee. Of course, a potential trustee should have good judgment and interpersonal skills, be available to handle trustee duties, have some investment experience and an attention to detail.