In recent weeks we have received numerous inquiries from clients claiming they need a Trust. The sources of this perceived “need” seems to be in large part driven by social media such as Facebook, Tik Tok and others. Additionally, ads on TV and the radio are advertising the need for Trusts for various reasons. This article is intended to give a basic explanation of Trusts, how they operate, and various purposes for setting up a trust.

Let’s start with the basics. There are two main categories of Trusts: Revocable Trusts and Irrevocable Trusts.

Revocable Trusts – Also called a Living Trust. This Trust can be altered, amended, modified or cancelled at any time by the Grantor or Grantors during their lifetime as provided in the Trust documents. Typically, the Trust does not have a separate tax identification number requiring a separate return to be filed with the IRS. Any gains or losses from assets in the Trust are not protected from creditors and are still part of the Grantor’s estate.

 Irrevocable Trusts – This type of Trust typically cannot be changed with few exceptions or by court order (Reformation). The Trust will have a separate tax EIN number and will in most instances be required to file a tax return. Additionally, the Grantor may also be the Trustee or the Beneficiary, but not both. There are multiple types of Irrevocable Trusts set up for a variety of estate planning, tax planning, and asset protection.

All Trusts, whether they are Revocable or Irrevocable, have a Grantor/Settlor – the person or persons setting up the Trust.

Trustee – the person, persons, or corporate entity in control of the Trust subject to the provisions of the Trust.

Beneficiary – the person, persons or entity designated to receive the benefit of the corpus (income or assets) of the Trust.

Is a Trust Needed and Why Set up a Trust

Trusts can be used for a variety of reasons but may or may not be needed or necessary. Examples of some uses of a Trust might be:

1. Transfer of an asset to a family member or charity if something happens to you.
2. Providing for a family member that may be in a difficult marriage, have financial issues, may have addiction issues, or some other reason that you may not want them to inherit a lot of assets.
3. Ensuring care of a loved one with Special Needs.
4. As part of an asset protection strategy.
5. As part of Estate Planning Strategy.

In Part II we will discuss specific details and uses of various Trusts, advantages and disadvantages.