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What Are Trusts

What Are Trusts

Why would I need a Trust?

The simple response is for either Asset Protection or Tax Protection.

A Living Trust changes the ownership of your property during your lifetime. As part of your Estate Planning, you use a Trust to transfer property into a trust. The assets within the trust can be used during your lifetime. At your death the Trust is used to distribute your assets to the beneficiaries you choose. A Living Trust is popular because they are an alternative to probate.


How does a Trust work?

A Trust is a contract between the Grantor (the person who creates the trust), the Trustee (one or more who control the trust) and the beneficiaries (those entitled to benefit from the trust). You, as Grantor, determine how the trust will be operated by the Trustee and who benefits, how and when.

Are there different types of Trusts?

The answer is yes. However, the most common Trusts are Revocable and Irrevocable Trusts:


What is a Revocable Trust?

This may be updated or terminated at any time, as long as the trustor is of sound mind to do so. Here are some of the reasons for Alabama residents to consider setting up a revocable Living Trust:

  • Avoid Probate: Assets that are held in a trust can be passed directly to the beneficiaries when the trustor dies without the need for them to go through probate. This means that the transfer of assets can be done without any court oversight or involvement.
  • Ensure Privacy: Probate is a public court proceeding, and anyone can review the documents that are filed there, including a will. This means that complete strangers could potentially look through your will and find out what property you left to your heirs. Trusts, on the other hand, are not filed with the court and do not become part of the public record.
  • Avoid Guardianship or Conservatorship: Revocable Living Trusts are not just for preparing for death, they also help plan for potential incapacitation. If you become incapacitated without a trust, your loved ones may have to go through a costly court proceeding and be subject to the restrictive rules of a court-supervised guardianship or conservatorship.

With a trust, your successor trustee can immediately take over management of the assets if something were to happen to you.


Trust helps to ensure that you minimize the chances of a contested estate:

If there is a dispute among family members after you are gone, it is much more difficult to contest a trust than to contest a will.

The main reason being that trusts are typically set up several years before the trustee passes away or becomes incapacitated and a successor trustee takes over.

Because you will likely be personally involved with the management of the trust for a period of time, it is much harder to argue that the terms

and conditions of the trust do not reflect your true wishes.


What is an Irrevocable Trust?

This requires the trustor to give up their rights to the trust. This means they cannot change the trust without the consent of the beneficiary. Here are some possible reasons for Alabamians to consider an irrevocable trust:

  • Minimize Estate Taxes: Perhaps the biggest benefit of having an irrevocable trust is to minimize your estate taxes. Property and assets that are placed in an irrevocable trust do not count toward the gross value of your estate. For those with a substantial amount of assets that go beyond the estate tax exemption, it may be advantageous to set up an irrevocable trust.
  • Protect Your Assets from Creditors: In order to shield your assets from creditors, the trust usually needs to be irrevocable, and the trustee and beneficiary usually need to be unrelated parties. These are known as “asset protection trusts”.
  • Become Eligible for Government Programs: Certain types of irrevocable trusts can be used to help someone qualify for a government program that has strict income and asset limitations.


Are there Other Types of Trusts?

Outside of the two main trusts, there are a variety of other options available for trustors to choose from when setting up their plan. Each one has a different purpose, so it is important to make sure you are setting up a plan that is right for you and what you wish to leave behind.

Other common trusts that people in Alabama choose can include:

  • Asset protection trusts
  • Life insurance trusts
  • Testamentary trusts
  • Inter vivos trusts
  • Special Needs Trusts
  • Charitable remainder trusts
  • Charitable leads trusts
  • Supplemental needs trusts
  • Generation-skipping trusts
  • Qualified personal residence trusts


Irrevocable Trust – it is a common misconception that Irrevocable Trust, once created, cannot be changed. While that is true of many irrevocable trusts created to avoid taxes (tax reduction or avoidance trusts), it is not true of all irrevocable trusts. An Irrevocable Trust is a trust you create for the benefit of yourself or others and once created, you, as Grantor, must give up your right to something.

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