In the process of estate planning there are various tools that can be used in order to formulate more effective as well as professional set of plan. Trusts are such estate planning tools to manage property as well as work as supplements for wills. Trusts basically transfers and allocates the property of the individual to the people he has mentioned in his will and manage the property throughout life. There are many reasons for the formulation of trusts while the proper management of property falls on the prime place.
Formulation of trust is rather very simple. The property owner gives the responsibility for the allocation and management of his property to certain person or organization also better known as trustees. These trustees are given the role of managing property for the benefit of other people or another person known as beneficiary. Trustees are solely responsible for any downfall as well as upgrade of the beneficiary’s property and needs to work according to the will and necessities of the beneficiary. If any trustee is not performing his task well, then the outcome of his carelessness is his responsibility. He is given proper compensation for his service but at the same time is legally bound to fulfill his duties towards the beneficiary.
Even the original property owner can act as a trustee if the prior trustee has not done what he is supposed to do. The transfer of his property to the trustee is the first step towards better management of the property. Also the beneficiaries if not of adult age do not have any authority to use the money themselves. They are taken care of by the trustees who use their money for any other purpose.
Basically there are two types of trusts. They are:
• Testamentary trusts
• Living trusts
Testamentary trusts
Testamentary trust is such which is transferred to the beneficiary through the trustee after the death of the granter or the property owner. As the choice regarding the people whom the granter wishes to distribute his property and also the series of time that he formulates for the allocation of his property can be planned accordingly, this kind of trust is opted for. However, this kind of trust is not formulated at the time of the death of the granter but rather is mentioned in the will. After little probation, the trust goes into full operation.
Living trusts
Living trust comes into operation during the lifetime of the grantor. He can choose to form a trust according to his own reasoning and probation can be avoided where the entire property can be transferred into the trust. The decisions made in the trust can be changed if it falls under revocable trust which acts as a supplement of wills. In case the trust is irrevocable, then the decisions made become the final ones. However, after the death of the grantor, the revocable trust becomes irrevocable.
Thus by understanding the type of trusts as well as the importance of such, a person can opt for the kind of tool he wishes for in order to formulate better estate planning.
Although trusts can supplement wills, the type of trust your are discussing is the living trust, or revocable trust. These trust are supplemented by wills and not the other way.
There are many types of trusts besides living trusts and testamentary trusts. I think you may have meant to state that trusts can be created during one’s life and upon their death. A living trust is created during ones life, but it is not the only type that can be created, there can be charitable trusts, life insurance trusts, pet trusts, irrevocable trusts…