What is a Trust?
A trust is an estate planning document that allows property to be held by a trustee for the benefit of another during the grantor's lifetime and after death. There are several types of trusts but the most common are testamentary trusts, irrevocable trusts, revocable trusts, special needs trusts and charitable trusts.
Trusts have several benefits which include:
- Avoiding probate
- Provide for flexibility and control in asset distribution
- Navigate tax compliance and tax avoidance
- Save time
- Save costs
Why Avoid Probate?
When someone dies and they do not have the proper estate planning documents in place, their estate needs to be probated in order to properly transfer the legal title of the decedent's property to their heirs. During the probate process, the Clerk of Court takes an accounting of certain assets the decedent has in their estate. Under North Carolina law, the personal representative or executor is required to provide notice to creditors, depending on the size of the estate. Furthermore, the estate filing within the Clerk of Court is public record and can be viewed by the public as such. A trust avoids the probate process and allows a person to maintain secrecy with their assets they have in their estate. This probate avoidance can also allow heirs to take property of the decedent's estate much quicker than going through the probate process.
Revocable and Irrevocable Trusts
A revocable trust is a document that allows the grantor to dictate and manage how they want their assets distributed throughout their life and after death but allows the grantor to amend the trust. A revocable trust is only revocable during the grantor's life time. Upon the grantor dying, the revocable trust becomes irrevocable. Revocable trusts are still subject to estate tax if outside of the taxable exclusion allowed by the federal government.
An irrevocable trust is a document that allows the grantor to dictate and manage how they want their assets distributed throughout their life and after death but does not allow the grantor to amend the trust. Once an irrevocable trust is established it cannot be amended to change the distribution of the grantor's assets. Irrevocable trusts provide beneficial estate tax liability consequences.
What Trust do I Choose?
Deciding on what trust to execute is a big decision for estate planning purposes. A few key things to consider are:
- Whether you want to maintain the ability to amend the trust or not?
- The value of your assets you will be placing in trust?
- The tax consequences each trust will provide my estate?
Estate planning is an important process of life to leave your family better off and a way of taking care of them in your final moments and after. Call Posch Law Firm today to start your estate planning process.
Trusts are governed by the North Carolina Uniform Trust Code, Chapter 36C. You can find this regulation here.