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Planning

Benefits of Establishing a Trust

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A Trust is a legal document prepared by an attorney that allows you to specify how, when, and to whom your assets will be distributed. Your Trust document should be stored in a safe, secure place accessible by your successor trustee. 

The parties to a Trust include:

  • Grantor – one or more individuals who create a Trust by transferring ownership of their assets to the Trust (also known as a settlor, trustor, creator, or donor)
  • Trustee – one or more individuals or a professional fiduciary responsible for managing the assets in the Trust according to the terms of the Trust document on behalf of the beneficiaries
  • Beneficiary – one or more individuals or entities designated to receive assets according to the terms of the Trust document
  • Successor trustee – one or more individuals or a professional fiduciary who will take on the role and responsibility of trusteeship upon the resignation, incapacity, or death of the original trustee

What is the difference between a Trust and a Will?

A Will is an important legal document which specifies who receives assets after your lifetime and in what proportion. A Trust allows you to control not only who receives your assets but how and when. If you have concerns about how your loved ones would spend an inheritance, you should consider a Trust to exercise additional control to ensure your estate planning wishes are carried out. If you choose to create a Trust, you will still need a Will to nominate a guardian for minor children and name an executor to handle your final affairs.

How to create a Trust

SECU recommends you consult a qualified estate planning attorney to create a Trust. There are self-service templates that allow you to create your own Trust, however, you should consult an attorney to obtain legal advice about your individual situation.

Attorney fees to draft a Trust can vary greatly depending on the complexity of your situation. You should ask about the fee before you agree to the services provided.

Testamentary Trust

A Testamentary Trust, or a Trust under Will, can be created within your Will to control how and when your property is distributed to your beneficiaries. Since a Testamentary Trust is part of your Will, the Trust and its terms become a matter of public record when the Will is admitted to probate.

With a Testamentary Trust, you appoint a trustee to manage the Trust assets on behalf of your beneficiaries. You can provide specific instructions to your trustee for management of your assets.

There are many situations in which a Testamentary Trust may be beneficial, including:

  • Minor children who cannot receive assets outright until they reach the age of majority (18 in North Carolina)
  • Adult children or other loved ones with inexperience in managing financial assets, spendthrift concerns, or substance abuse issues
  • Beneficiaries with special needs who may risk losing government benefits if assets were left to them outright

Irrevocable Trust

An Irrevocable Trust is one in which the Trust terms cannot be changed or revoked. A Testamentary Trust becomes irrevocable upon the death of the person who created it in their Will. A Revocable Living Trust (RLT) also becomes irrevocable upon the death of grantor. While it is also possible to create an Irrevocable Trust during your lifetime, you should consult with an attorney prior to creating an Irrevocable Trust while you are living.

Revocable Living Trust

A “Living” Trust is created and funded during your lifetime. A Revocable Living Trust allows you to specify how your assets should be handled during your lifetime, as well as how they are distributed upon your death. Assets can be added or removed from the Trust throughout your lifetime. An RLT can be revoked or amended to change its terms. 

Although you may transfer some of your assets into the Trust during your lifetime, you do not lose control over the assets as long as you still have the ability to revoke the Trust. Putting your assets in a Trust can provide you with peace of mind, control, privacy, and convenience, and help avoid probate. For many individuals who create an RLT, they are the grantor, trustee, and primary beneficiary during their lifetimes while they have the capacity to manage Trust assets. If you were to become incapacitated or pass away, your successor trustee would step in to begin managing the Trust.

Choosing your trustee

In your Trust, you will also nominate a trustee, who is responsible for administering Trust assets for the benefit of the named beneficiaries based on the terms of the Trust document. In the case of an RLT, the grantor and trustee are often the same person while they are living and have the capacity to manage Trust assets.

A trustee has many responsibilities and duties, including reviewing and paying bills; managing Trust assets which may include financial assets, personal property, real estate, or business interests; handling tax filings; reviewing beneficiary distribution requests; and providing detailed account statements to beneficiaries. When choosing your trustee, it is important to consider who has the competence, time, and organizational skills to manage the Trust assets, as well as whether there any potential family dynamic issues that could arise if the trustee and beneficiary are related.

Any competent person over the age of 18 can serve as trustee. A financial institution or Trust company can also serve as executor. SECU Trust Services through Members Trust Company (MTC) offers Corporate Trustee Services to handle Trust administration. SECU through MTC is able to make decisions objectively without the potential bias of family members to ensure your estate plan is maintained and implemented as intended.

When to change a Trust

As circumstances in your life change, you may want to update your Trust to reflect these changes.

You may wish to change your Trust to provide for the following life events:

  • Marriage, separation, or divorce
  • Birth or adoption of a child
  • Death of a spouse or child
  • Moving to a different state

You should work with a qualified estate planning attorney to make changes to your Trust. It is not advisable to make changes on your own, including any hand-written notes.