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Trusts 101 – The Basics of Trust
Many Americans will lose tens of thousands of dollars because they have been misinformed on the basics of trusts. This is attorney Jim Daloisio. I am the Director of Legal Services at Torchlight Tax and have been working with its CEO, Dave Horwedel since 2017.
Today I am going over Trusts basics. I call this Trusts 101. We are going to define the basic types of trusts and the potential benefits. You are also welcome to contact us at Torchlight Tax if you have questions about trusts, asset protection, or taxes. We will be glad to give you a free consultation, even if you do not watch the entire video. For a free consultation you can call us at 1-877-758-7797 or email us at info@torchlighttax.com. The first question really is, what is a trust? A trust is a contract between the grantor, which is the person that creates the trust, the trustee, who is the person that manages the trust, and the beneficiaries, who are the people that are going to benefit from the trust. The trust gives the rules about what happens with assets and how the grantor, trustee and beneficiaries interact. If you create the trust, you set the rules. The grantor sets the rules. Now, you want to make sure that your rules do not violate the law and they achieve your purposes in setting up the trust. This is important because if you don’t make your rulebook, you’re going to get the rulebook that the state gives you. You’re going to follow the state’s rules. And if your trust document has provisions in it that violate the law, that can ruin everything. Also, you can accidentally put provisions in the trust document that hurt your own interests. This is why it is important that you have someone who knows what they are doing put together your trust documents. So, you make the rulebook, but you need to do it with competent legal support or otherwise you may shoot yourself in the foot. There are two main types of trust. The first is testamentary trust. Testamentary means “relating to or bequeathed or appointed through a will.” Thus, a testamentary trust is one that is created in a will. The trust does not exist during your lifetime, because it is in a will and does not come into action until your death. So, a testamentary trust does not do anything for you or your beneficiaries while you are alive. OK. So, you write out your will. Per your will, your thirty-year old son Bob is going to inherit your home, your business and your rental properties. Great. Suppose you get into an accident and are alive but in a coma. You cannot run the business, collect rent, maintain your home, or pay the bills. Bob has no access to your bank accounts. Bob cannot collect the rent. Bob cannot run the business. A testamentary trust doesn’t transition control of assets in the event of a disability. So, if you’re alive and you get sick or disabled, a testamentary trust does not enable somebody to take control of your assets in the event of disability. Now if you and your wife are simply working W2 jobs and there is no business involved and no major assets, this may not be necessary. One key benefit of a Living Trust is that it allows the Trustee—who you pick and trust—to take over in an emergency. What does the will do? The will makes your wishes known to the court and sets up a testamentary trust at your death and makes your instructions known to probate court. It is going to direct Instructions to the probate court, and your beneficiaries should inherit the properties you bequeath to them via a court—called the probate court. A will is inherently a document intended for probate. It’s going to require a probate proceeding to create this testamentary or death trust. The problem with living wills and their resulting testamentary trusts is that you have involved the court system in your personal affairs. Who pays the legal fees for probate? Your estate. This does not sound very good, does it? The main person who benefits is the attorney who is hired by the court to make sure the will is faithfully executed. The attorney gets paid when your will goes into probate. It can be a bit misleading. You want to make sure your wife and kids inherit if something happens to you. You call up an attorney and he quotes you a low price for the will. You pay for it, go down to his office and write up your will. You ask him “Should I get a trust?” “No need” he says, “A will will handle it just fine”. Two years later you get run over by a speeding limousine. You spouse goes to court and YOUR ATTORNEY MAY BE PAID THOUSANDS AND THOUSANDS OF DOLLARS OUT OF YOUR ESTATE TO EXECUTE THE WILL.”
You are welcome to contact Torchlight Tax for a free consultation. You can call us at 1-877-758-7797 or email us at freeconsulation@torchlighttax.com.