Page 32 - Bancroft Legal Planning Guide

USING TRUSTS IN ESTATE & LONG- TERM CARE PLANNING
WHAT IS A TRUST AND HOW DOES IT WORK?
A “trust” is an arrangement in which someone (a “settlor,” also called a “grantor”) transfers money or other assets to another (a “trustee”) who manages the assets and spends the money under written terms and conditions for the benefit
of a specified person or persons (a “beneficiary”). There are all kinds of trusts that exist for a variety of purposes. Not
all trusts are the same. Some are “revocable;” others are “irrevocable;” some become active immediately when created (inter vivos, that is, “living trusts”); others are included as part of one’s Will and do not come into existence until after death (“testamentary trusts”); some are created to protect against the risk of mismanagement; or improvident spending; or against various kinds of taxes; many are designed to provide a combination of different benefits and protections. But all trusts contain the roles noted here – settlor, trustee and beneficiary.
Interestingly, the same person or persons can fill more than one of these roles. For example, the commonly recognized “Living Trust” that we’ve all heard about is a revocable trust in which the settlor, trustee, and beneficiary are all one and the same person. More often, the settlor, either one person or a group, such as a married couple, create and fund a trust administered by a corporate trustee for the benefit of family members.
Trusts generally fulfill one or more of the following purposes:
• Management Assistance • Probate Avoidance
• Tax Avoidance • Public Benefits Eligibility
• Creditor Protection
EXAMPLE – SUPPORT TRUST: John and Mary transfer cash and securities to XYZ Bank under a signed agreement whereby the bank manages the money and spends it for the health, education, maintenance and support of John and Mary’s children.
Support trusts are often used in traditional estate planning by parents who want to ensure that the inheritance they pass on to their children is not squandered by divorce, improvident spending, consumed by the re-married spouse of a deceased child, or seized by creditors.
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