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TRUSTS

Broadly speaking, a trust is a bit like a business that is established to hold and manage property. There are three roles to be played.  The Grantor (sometimes called a Settlor) is the person (or people) establishing the trust and typically is the person transferring money into the trust. The Trustee is the individual(s) who manage the trust property and make distributions of trust income and property to the Beneficiary(ies) of the trust. One person may hold all three roles: Grantor, Trustee and Beneficiary.

Trusts are either revocable or irrevocable. A revocable trust, as the name implies, can be revoked or amended by the Grantor at any time and for any reason. An irrevocable trust cannot except under very specific circumstances or by court order. Trusts are either created during a person's lifetime (these are called "living trusts" or "inter-vivos trusts"), or they are created at death by operation of a person's Last Will and Testament (there are called "testamentary trusts.")  Revocable Living Trusts are commonly used in estate planning as an important component of an overall estate plan because they provide flexibility, asset protection and help to avoid costly and time consuming issues of probate. Revocable living trusts typically cost a little more to establish than a simply will, but typically result in less expense overall when including the cost of probate.

A revocable living trust is created while you are alive, allowing you to administer the trust until you pass away or become unable to do so.  It can be changed and even revoked at any time, for any reason, and without consulting anyone else. They do not have to be filed in probate court. At death, the trust becomes irrevocable so that your heirs cannot defeat or change your plans for disposition of your assets. Administration of the trust is taken on by a successor trustee who manages the assets and makes distributions to the ultimate beneficiaries as set forth in the trust agreement, without the delay and expense of probate court. There is no public record of the assets in the trust which allows a greater degree of privacy, unlike in probate, where there is a public record of the assets of the estate and a public record viewable by anyone showing what each beneficiary has received.

There are also many specialized trusts that can be set up for specific purposes; they can be living trusts or testamentary and, depending on the planning goal, revocable or irrevocable. As some examples, some situations call for a special needs trusts that protects assets for people who receive public benefits such a Medicaid. Trusts can be used for charitable purposes, tax planning, management and protection of assets for children until they reach designated ages, and a host of other situations. Some states, including Virginia, allow for the creation of asset protection trusts that are of particular interest to individuals working in professions that have a higher risk of lawsuits and other liabilities, such as contractors, doctors, accountants, lawyers and other professionals.

There are online templates and other software packages available for free or a modest charge which some people use to create their own trusts. Sometimes those templates may even get the job done. More likely, a do it yourself approach is at best useless and, in some situations, leads to unintended tax consequences and far greater expense later to correct the flawed document.

Call to speak to a Maryland estate planning attorney about trusts or email for more information.