A “trust” is something you might associate with wealthy socialite families. But trusts are actually a common Michigan estate planning device used by individuals from all social and economic backgrounds. There are, in fact, many different kinds of trusts that may be helpful to your own estate planning depending on the needs of you and your family.
The most common type of estate planning trust is an “inter vivos” or revocable living trust. This is a trust created by a person—known as a grantor—who conveys property to a trustee. In most revocable living trusts, the grantor and the trustee are initially the same person. This allows the grantor to retain full control over the trust’s assets while legal ownership remains with the trustee.
You might wonder what the point is of transferring an asset to yourself. The real benefit of a trust comes after the grantor passes away. Normally, a deceased person’s assets pass through their estate. This requires a special legal process known as probate, which can take several months (or even years) to complete. Probate estate records may also be available to the public.
A trust, in contrast, is a private act. When the grantor-trustee dies, a successor trustee named in the trust document simply assumes control and administers or distributes the trust property as directed by the grantor. Assets in the trust are not considered part of the grantor’s probate estate.
This inter vivos trust is also quite flexible. The trust is “revocable,” which means the grantor can amend or revoke it any point during his or her lifetime. Once the grantor dies, however, the trust generally becomes irrevocable.
There are also some cases where a person might want to create an irrevocable trust. As you might expect, an irrevocable trust is one that cannot be altered or revoked by the grantor once made.
Why would anyone create an irrevocable trust? With a revocable trust, the grantor is still considered the beneficial owner of the trust’s assets. This means the settlor’s creditors can go after those assets, say to collect a court judgment. However, if the settlor places the assets in an irrevocable trust, he or she is no longer considered the beneficial owner, and those assets are beyond the creditor’s reach.
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Besides revocable and irrevocable trusts, there are other kinds of specialized trusts. For example, a Special Needs Trust allows a grantor to provide for a beneficiary receiving government benefits. Many public assistance programs are means-tested, so the beneficiary could lose benefits if they received a large gift or inheritance directly.
Another kind of indirect benefit trust is known as a Spendthrift Trust. Here, the grantor makes financial provisions for a beneficiary but restricts the beneficiary’s access to the trust principal. Similar to an irrevocable trust, this will prevent the beneficiary’s creditors from going after the principal.
This is only a brief overview of some of the types of trusts available to Michigan residents. If you are considering creating any type of trust, you should work with an experienced Norton Shores estate planning attorney. Contact the Law Offices of David L. Carrier, P.C., to speak with someone right away.