A trust is created when a person transfers “stuff” to a trustee who will manage the stuff for the benefit of one or more beneficiaries. “Stuff” includes real property — such as land and buildings — and personal property — such as bank accounts, stocks and bonds, and personal effects. The person who transfers the stuff to the trustee is called the trustmaker. Often, the trustmaker is also the trustee (or perhaps co-trustee) and the initial beneficiary of the trust. The trust agreement between the trustmaker and the trustee sets out the rules about how the trust will be run.
Revocable & Irrevocable Trusts
If the trust agreement says that the trustmaker can revoke it or change it, the trust is called a “revocable trust.” If the trust agreement does not allow the trustmaker to change or revoke it, it is called an “irrevocable trust.” Irrevocable trusts are used in many estate plans to enable trustmakers to make gifts but keep the recipients from having complete control over the gifted assets.
Living & Testamentary Trusts
A living trust is one that is created and funded (that is, stuff is transferred into it) during the trustmaker’s lifetime. It can be revocable or irrevocable, depending on how much control the trustmaker wants to maintain over the trust and its assets. A revocable trust gives the trustmaker complete control, whereas an irrevocable trust gives the trustmaker limited or no control. A testamentary trust is one that goes into effect and is funded following the trustmaker’s death because it is governed by the trustmaker’s last will and testament.
Trusts are often the building blocks of effective estate plans. They provide simplicity, flexibility and predictability in dealing with your assets. Trusts also give you the peace of mind of knowing that you have arranged your affairs to ensure that your wishes will be carried out just the way you planned, and that future transitions (such as your incapacity or death) will be much easier on your loved ones.
If a trust is not already part of your estate plan, talk with your trusted advisors about how a trust might benefit you and your ‘ohana.