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A Comprehensive Guide to Trusts: What is a Trust, & Why You Should Have One in Illinois

By Gardi, Haught, Fischer & Bhosale LTD
October 15, 2024
what is a Trust

This comprehensive guide is a must-read for anyone interested in trusts. Unsure of what a trust is and what they’re used for? This article covers everything you need to know about trusts, from the different types of trusts to who needs one and how to establish it. 

What is a Trust? 

A trust is a legal document in which a third party, known as a trustee, is authorized to manage assets that are titled to the trust on behalf of the beneficiaries. Trusts are not just for wealthy people; estates of all sizes can benefit from the protections and tax advantages trusts offer. 

What is the Purpose of a Trust? 

A trust has several key purposes. It ensures that assets are managed and distributed according to the grantor’s wishes, helps avoid probate, offers privacy, and protects assets from certain tax liabilities in some situations. It is also useful for managing long-term care for children and dependents with disabilities or ensuring financial stability for future generations. 

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Types of Trusts 

There are several types of trusts, each designed for different needs and goals: 

  • Living Trust 
  • A living trust is created during the grantor’s lifetime and names a trustee to manage assets for the beneficiaries after the grantor passes away. 
  • Revocable Living Trust 

The revocable living trust is a type of trust that can be changed or revoked while the grantor is still alive.  It helps avoid probate and offers flexibility, although it does not provide full asset protection during the grantor’s lifetime, as creditors may still access the assets. 

Irrevocable Trust 

Once established, an irrevocable trust cannot be altered. The grantor relinquishes ownership of the assets placed in the trust. This type of trust is often used for asset protection or estate tax minimization and is particularly beneficial for individuals vulnerable to lawsuits or who have very large estates. 

Joint Trust 

Two people, typically spouses, create a joint trust. While alive, both have control over the trust’s assets. After one partner passes, the surviving partner becomes the trustee. 

Testamentary Trust 

This trust is established through a will and only takes effect after the grantor’s death. Unlike a living trust, a testamentary trust goes through probate and may not offer the same level of privacy. 

What to Add to a Trust 

Trusts can hold various types of assets, including: 

  • Real estate (homes and other properties) 
  • Tangible property (jewelry, collectibles, vehicles) 
  • Retirement accounts (with the trust named as the beneficiary) 
  • Brokerage accounts and non-retirement investments 
  • Cash accounts (savings, checking, money markets, CDs) 
  • Business interests, stocks, bonds, and non-qualified annuities 

How to Name a Trust 

Naming a trust is a simple but essential step. Most people use their family name, followed by “Revocable Living Trust,” possibly including the date of establishment. This makes the trust easy to identify and ensures clarity when renaming assets under the trust. 

How to Fund a Trust 

Funding a trust means transferring ownership of assets into the trust. This process involves retitling the assets to be owned by the trust. The specifics vary depending on the asset type, so it is essential to check the process for each one. For instance, real estate requires a deed transfer, and transferring bank accounts may involve filling out specific paperwork with the bank. 

Other Common Questions About Trusts 

Differences Between a Will and a Trust 

The primary difference between a trust and a will is that a trust takes effect as soon as it is created, whereas a will only becomes active after death. Trusts also avoid probate and maintain privacy, while wills go through the public probate process. 

What is a Trust Fund? 

A trust fund is a financial arrangement that holds assets like investments, cash, and real estate. These assets are distributed to beneficiaries over time, often with specific conditions. 

What is a Trustee? 

The trustee is the person or entity responsible for managing and distributing the assets in the trust according to the grantor’s instructions. The trustee also handles the trust’s tax filings and legal responsibilities.   

Can a Trustee Be Removed from a Trust? 

Yes, a trustee can be removed under certain conditions, especially if they fail to fulfill their responsibilities or wish to step down. The method for removing a trustee is often outlined in the trust agreement. 

Can a Trustee Use Money from the Trust? 

Trustees, the individuals or entities responsible for managing and distributing the assets in the trust, can only use trust assets to fulfill trust obligations or benefit the beneficiaries. This reassures you of the security of your assets, knowing that they cannot be used for personal reasons. 

What Is an A-B Trust? 

An A-B trust is designed to reduce estate taxes and is typically used by married couples. When one spouse dies, the trust splits into Trust A (the survivor’s trust) and Trust B (the decedent’s trust). This arrangement allows the surviving spouse to benefit from the assets while protecting them from estate taxes. 

Can I Put My Vehicles in My Trust? 

Yes, but some complexities may arise, especially with insurance. Most people do not transfer vehicles into the trust and instead rely on a “pour-over will” to move vehicles into the trust upon death. Valuable cars, however, might be handled differently. 

Establishing a trust offers numerous benefits, including asset protection, privacy, tax advantages, and controlling wealth distribution. It provides security and peace of mind for you and your loved ones, ensuring your wishes are honored even when you are no longer around. Setting up a trust as part of your estate plan is valuable in safeguarding your legacy for future generations. 

 Gardi, Haught, Fischer & Bhosale can assist you with trust questions or concerns. Contact one of our trust attorneys, Ann Fischer, today. You can request a free consultation by calling 847-944-9400 or using the form below.

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