Trusts provide a way to preserve and protect assets, as well as pass assets to heirs outside of the probate process. They are frequently utilized in estate planning to minimize estate taxes. They can also be used to protect assets by moving assets away from the grantor. Trusts are typically formed under state law, however unlike corporations and LLC’s they are not usually registered with the state in which they are formed.
Trusts usually have grantors, trustees, and beneficiaries. The grantor contributes assets to the trust and executes the formation of the trust. The trustee is designated by the grantor, who manages the trust assets for the benefit of the beneficiaries according to the terms laid out in the trust.
A trust can be revocable or irrevocable. A revocable trust, frequently referred to as a living trust, allows the grantor to retain control of the assets while at the same time allowing those assets to pass outside of the probate process. A revocable trust typically does not enable the trust assets to avoid estate taxes.
An irrevocable trust, on the other hand, involves the transfer assets out of the grantor’s name and typically causes the grantor to lose control of those assets. Because these assets are transferred out of the grantor’s estate, they typically avoid estate taxes in many circumstances.