Historians think trusts date all the way back to the 12th century. At the time, English landowners who were heading off to war would transfer ownership of their land to another person. In other words, they would “trust” someone else to manage all the responsibilities of land ownership and hold all rights to the property until the original owner’s return.
While today’s trusts have certainly evolved, the basic concept of entrusting someone else with property when an owner is unable to manage their own affairs is still the same. Trust property can include, but is not limited to, wealth, real estate, and even sentimental items like jewelry, photographs, and collectibles.
The establishment of a trust allows the grantor, or the person who creates the trust, to very specifically control how their property will be managed and distributed after death or in other scenarios. In many cases, a will, which directs the distributions of assets at the time of someone’s passing, is a sufficient component of an estate plan. However, trusts do provide additional benefits that may be helpful for some.
Flexibility
In addition to determining the beneficiaries of a trust, the grantor has the ability to control how and when assets are ultimately distributed and under what circumstances distributions will be made. For example, some trusts allow distributions when a beneficiary attains a certain age or meets a specific need such as education or medical care.
Protection of Assets
Once a trust is established and funded, the trust owns the assets rather than the grantor. Because the assets are no longer included in the grantor’s personal estate, they are typically protected from creditors and lawsuits.
Avoid Probate
Probate courts administer the transfer of estate assets at death, and wills are public records and can be disputed in the court. Because a trust owns the assets, they are not included in the grantor’s estate and therefore are not subject to the probate court. Avoiding probate ensures privacy and allows trust assets to be distributed efficiently and promptly after death.
Minimizing Taxes
Historically, trusts were used as a vehicle to provide estate, gift, and generation-skipping tax benefits. This is less common today as both Maine and federal tax exemption amounts have risen steadily over the past several years (they currently stand at $7 million and $13.99 million, respectively). It is estimated that only roughly 1% of Americans are subject to estate taxes.
Your estate planning attorney can help you determine if an irrevocable trust might be a good estate planning option for you and your family. A full-service wealth management firm like Portland Trust Company can handle the rest.