• Saving estate taxes
• Control over the beneficiary’s inheritance
• Probate avoidance

You may use a trust for one, two, or all three of these purposes as described below.

A trust designed to save federal estate tax is complicated and is only used by people with a net worth in excess of the federal estate tax limit.  In 2011/2012 this limit was $5,000,000.  These advanced trusts allow a marital couple to shelter up to $10,000,000 from federal estate taxes.  The tax rate is 35% of the value of the estate over the base limit.  If your estate is less than $5,000,000 these trust are not necessary for you.  In 2013, the credit goes down to $1,000,000 unless Congress changes the rules. 

While only a few people need a trust to save estate taxes, many people may benefit from a trust that provides control over the inheritance.  These types of trust can be effectively used for estate of several hundreds of thousands of dollars and up.  The trust places controls, safe guards, and a distribution plan around the inherited assets.  For example, your child is 16.  If you die, you would like the trust to provide for your child’s support until age 25 and then the child receives one-half of the trust at age 25 and the other one-half at age 30.  These control based trust manage an inheritance for special needs beneficiaries, minor beneficiaries, spendthrift beneficiaries, and anytime there is a reason to delay the inheritance or to protect the inheritance from risk.  They can also protect the inheritance from law suits and divorces that may happen to the beneficiary.  For example, dad dies and leaves his money in trust for his daughter providing income to my daughter for life and the remainder at her death to my grandchildren will not be a marital asset if the daughter divorces her husband.

The other purpose for a trust is to avoid probate.  Assets owned by the trust, at the death of the person who set up the trust, do not go through probate.  This saves time and money.  (See Avoiding Probate LINK)  Again there is no dollar limit on probate avoidance.  Many people with small estates can benefit from avoiding probate.

• Delay in the administration
• Mismanagement of the estate or trust affairs
• Self dealing – using assets for their own benefit
• Breach of a fiduciary duty
• Breach of loyalty
• Failure to communicate to the beneficiaries

• Reduce or eliminate estate taxes
• Control over the beneficiary’s inheritance
• Probate avoidance

During life, the creator of a Revocable Living Trust (also known as the Settlor), can change the distribution plan. Upon the death of the Settlor (or both Settlors if there are more than one) the Trust then becomes irrevocable and cannot be changed.

A basic estate plan can include one or more of the following legal documents:

• Last Will and Testament
• Power of Attorney
• Power of Attorney for Health Care
• Living Will
• Revocable Living Trust

Each of these documents is described in more detail in the next five questions.

Administrator. A person (or entity) who qualifies as the personal representative of a decedent’s estate, where the decedent, at time of death, did not leave a will acceptable for probate with the Court.

Decedent. Describes a deceased person, who died testate with a will that may require probate with the Court, or who died intestate, without a will, with assets that require estate administration.

Executor. A person (or entity) who qualifies with the Court as the personal representative of a decedent’s estate, where the decedent, at time of death, left a will acceptable for probate with the Court.

Fiduciary. As used in the context of this website, refers to a person (or entity) who is charged with the duty of properly administering the assets or property of another. This would include a personal representative, either Administrator or Executor of an estate, or a trustee under a testamentary trust.

Intestate. Describes a person who dies without a will acceptable for probate with the Court.

Personal Representative. A general term that refers to either an executor or administrator who has qualified with the Court on a decedent’s estate.

Testamentary Trust. A trust established by a decedent in his or her will for administration after the decedent’s death. For example, a trust provided in a decedent’s will setting forth the terms for management of estate assets passing to children until they reach the age specified in the will. The trustee of a testamentary trust is normally named in the will.

Testate. Describes a person who dies with a will acceptable for probate with the Court.

Will. Refers to a document executed by a person providing direction for the handling of their estate upon death. In order for a will to be accepted for probate with the Court it must be prepared and executed in accordance with applicable law.