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A Trust, generally, is a legal entity that can hold title to property. There are three parties to a Trust agreement: the Trustmaker who creates the Trust, the Beneficiary who receives the benefit of the property held in the Trust, and the Trustee who manages the Trust. The property that is transferred to and held by the Trust becomes the Trust principal. If you create a Trust within your Will, it is called a Testamentary Trust. If you create a Trust while you are alive, it is called an inter vivos or Living Trust.
While you are alive, you usually will receive all the income of the Trust and as much of the principal as you request. Upon your death, the Trust assets are distributed to your Beneficiaries in accordance with your directions contained in the Trust agreement, or it can continue for specified purposes for a period of time.
The Advantages and Disadvantages of a Trust
The Main Advantages of a Living Trust:
- If you want or need to have someone else manage your property and pay your bills in case of illness or disability, the Living Trust is an ideal estate planning tool for you.
- Avoiding probate which can save time and money, especially if you own real estate in different states.
- Because a Living Trust is not filed in Court, its provisions are private. This differs from a Will, which must be filed with the Probate Court and becomes public.
- Reduction of delays in distribution of your property after you pass away.
- Continuity of management of your property after your death or incapacity/disability.
The Main Disadvantages of a Living Trust:
- There are usually more initial costs in setting up a Living Trust as compared to a Will because a Living Trusts generally requires more extensive, technical and complex drafting.
- “Funding”, which is the process of re-titling your assets in the name of your Living Trust, takes time.
- Administering the Trust can be expense depending on who is acting as Trustee.
I hope this information helped you better understand Trusts and how they fit into the estate planning process.
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