Wills and trusts are both major parts of estate planning. Both are very popular forms of protection for families and their property. Let’s now focus on the basics of a trust — what are trusts and how can they be useful to you and your family?
A Ttrust is a plan created by a trustor that will allow a third person (trustee) to hold or manage assets on behalf of its beneficiary or beneficiaries. A trustor is the person placing their assets in a trust and a trustee is the person selected to manage the trust. The beneficiary or beneficiaries of a trust are the family members that will receive the benefits of the assets in some way. The assets in a trust can include: cash, inventory, real estate, equipment, and other property. Trusts can be arranged in various ways and usually provide specific instructions on how the assets will be passed to beneficiaries.
There are many types of trusts and they can be revocable or irrevocable. A revocable trust or living trust allows the trustor to remain in control of their assets while they are living. The trustor is allowed to name themselves as the trustee, but should list a third person to become trustee upon their death. Since the trustor is allowed to maintain control over the assets this type of trust could be subject to estate taxes. A living trust can be changed or closed at anytime, however it becomes irrevocable once the trustor dies. An irrevocable trust cannot be altered once it has been created. The trustor usually transfers their interest in the assets into the trust and no longer has control. Irrevocable trusts are protected from estate taxes since the trustor no longer has an interest in the property.
So what are some of the major differences between a will and a trust? Once a person dies, if they have a will, it has to be filed with the clerk of court in order to go through probate. Probate is the legal process used to distribute the property left in a will. When the will is filed with the court it becomes public record and can be viewed by anyone. After the will has been filed, the executor of the estate is given authority to carry out the instructions of the will. The executor is the person selected to carry out the instructions of the will. The executor has a certain amount of time to follow the required North Carolina rules for settling the estate and must file the necessary paperwork proving it was done properly. Some of the required rules include sending notices to creditors, paying any necessary bills or debt, and possibly selling property. This means it may take some time for the family members or heirs to receive any property from the estate.
Alternatively, when the trustor creates a trust, he or she transfers their interest or ownership in the assets to the trust. The trustee has the authority to begin managing the assets immediately even while the trustor is still alive. Once the trustor dies the trustee is not required to file anything with the court, and therefore does not have to go through the probate process. This means any information concerning the trust does not become public record. More importantly, the trustee is only required to follow the instructions of the trust and can transfer property more quickly without having to pay any creditors or remaining debt.
There are so many other benefits to creating a trust such as protecting your assets from lawsuits, bankruptcy, creditors, divorce or remarriage. You should contact an attorney in order to learn more about what types of trusts are available and which would be beneficial for you and your family.
Bellonora McCallum is an attorney at the McCallum Law Firm, PLLC, in Rockingham and Laurinburg. Reach her at 910-730-4064 or visit www.mccallumlawfirm.com