Legally, your trust now owns all of your assets, but you manage all the assets as a trustee. Trust funds are legal entities that hold several types of assets for the designated grantor, including money, real estate, investment accounts, a business, or any combination of these options. The main reason people open trust funds is to ensure that their assets are distributed the way they choose, either while they are alive (more on this later) or after they die. Trust funds are established by the grantor and managed by the trustee until the time comes for the beneficiary to receive payment or other assets.
An active trust is one that must be used during the life of the grantor. Most trusts are living trusts, meaning that the assets will be available to the beneficiary at a pre-planned time, regardless of the grantor's situation, unless conditions change during the life of the fund before the time comes to distribute it. Once you deposit assets into a trust fund, it's considered an active trust. Most living trusts are what are called revocable living trusts.
This is when the trust can be revoked (i.e., testamentary trusts or “post-death trusts”) are created through a will and are funded after the grantor's death. These have become less common in recent years, as living trusts can be formed in the same way and, at the same time, avoid the need to legalize a will (when a will is proven to be valid and a court enforces its conditions). The purpose of an irrevocable trust is to transfer the assets of control and the name of the grantor to that of the beneficiary. This reduces the value of the grantor's estate in terms of estate taxes and protects creditors' assets.
A trust is a trust agreement that allows a third party, or trustee, to hold assets on behalf of one or more beneficiaries. Trusts can be organized in many ways and can specify exactly how and when assets are transferred to beneficiaries. The grantor can dictate the terms, rules, and uses of the trust's assets with the consent of the trustee and the beneficiary. Some beneficiary designations (for example, insurance policies) should also be changed to your trust so that the court cannot control them if a beneficiary is disabled or no longer living when you die (IRA, 401 (k), etc.
Proper estate planning is incredibly important because you're planning for the future of your family and your assets. When the first spouse dies, some assets can be transferred to the bypass trust and held for the benefit of the surviving spouse without having to pay federal estate tax. The assets held in the trust may include (but are not limited to) a business, investment assets, cash, and life insurance policies. The assets of a trust can also be transferred regardless of the legalization of estates, saving court time and expenses and potentially reducing estate taxes.
Once an asset is transferred to that trust, it becomes the property of the trust for the benefit of its beneficiaries. Irrevocable trust funded by donations from its grantor; designed to transfer the future revaluation of rapidly revalued assets to the next generation during the life of the grantor. Trusts are created to manage assets throughout life, transfer them when you die, and control the legacy to the heirs in order to protect inheritances. The grantor can choose this structure to exempt trust assets from their tax obligations, in addition to other financial benefits.
Over the centuries, laws related to trusts developed to encompass many other situations and assets. An irrevocable trust is generally preferred to a revocable trust if its primary objective is to reduce the amount subject to estate taxes by effectively eliminating the trust's assets from your estate. Most active trusts also include jewelry, clothing, works of art, furniture, and other assets that don't have titles to themselves.
