When it comes to estate planning, a trust agreement is one of the most commonly integrated components in a well thought out estate plan. If you are considering incorporating a trust into your estate plan, you likely have numerous questions regarding trusts and their associated advantages. A key concern may revolve around your capacity to maintain control over assets once they have been transferred into a trust. To provide insight into how a trust aligns with your estate plan and what happens to assets after they are transferred into a trust, the attorneys at Eghrari Law Firm explain when and how you can continue to control assets after they are transferred into a trust.
Foundational Aspects of a Trust
The establishment of a trust involves the formulation of a legal document known as a trust agreement. At its core, a trust represents a legal relationship wherein the Settlor (the trust creator) appoints a Trustee to safeguard and manage assets intended for the benefit of a third-party beneficiary (or beneficiaries). If the trust is created and administered during the Settlor’s lifetime, it is referred to as a living trust, while a testamentary trust comes into effect through a provision in the Settlor’s Last Will and Testament and is managed after the death of the Settlor. A living trust can be revocable or irrevocable. The categorization of a living trust as revocable or irrevocable becomes crucial when discussing control over trust assets. Once activated, a testamentary trust is always considered irrevocable due to the Settlor’s death.
Understanding Control Over Trust Assets
A trust can encompass a diverse array of assets, such as cash, real estate, securities, life insurance proceeds, and other valuable items. Once an asset finds its way into a trust, it becomes the legal property of the trust. Before you decide to create a trust, and certainly prior to transferring assets into that trust, it is crucial to have a clear understanding of your ability to maintain control over those assets. Control, or lack thereof, hinges largely on the type of trust involved and whether you assume the role of Trustee.
In the case of a revocable living trust, the Settlor retains the authority to modify or revoke the trust at any time. This extends to the power to transfer assets into or out of the trust. As the Settlor, you can withdraw an asset from the trust to reclaim control whenever desired. While assets are held by the trust, however, the Trustee is responsible for managing and controlling trust assets. In some instances, the Settlor serves as the Trustee of the trust. This scenario commonly arises when a revocable living trust forms part of a broader incapacity plan. By naming yourself as the Trustee, you can maintain control over trust assets without the need to remove the assets from the trust. If you become incapacitated, your designated successor Trustee can immediately step in and take control of the trust assets.
Conversely, with an irrevocable living trust, the Settlor relinquishes control over assets transferred to the trust, and the ability to withdraw these assets is forfeited. The lack of control over assets held in an irrevocable trust is precisely why such trusts are employed for asset protection. Since the trust functions as a distinct legal entity and is irrevocable, assets transferred into it become trust property under the control of the appointed Trustee. While it is legally feasible to designate yourself as the Trustee of an irrevocable trust, doing so compromises the asset protection advantages these trusts offer. In practice, you would not typically assume the role of Trustee for an irrevocable trust you create, leaving the control of assets within the trust beyond your reach. With a testamentary trust, control remains with the Settlor until death, during which the trust activates and transforms into an irrevocable entity.
Do You Have Additional Questions about Trust Assets?
For more information, please join us for a FREE estate planning seminar. If you have additional questions about your ability to control trust assets, contact the Long Island trust attorneys at Eghrari Law Firm by calling us at 631-265-0599 to schedule your appointment.
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