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Making the decision to ‘trust’

There are many different kinds of trusts including, but not limited to, marital trusts, charitable trusts, revocable trusts, irrevocable trusts, family trusts, living trusts and even pet trusts.

A trust is analogous to a briefcase in that it is something where you can put your assets before they are released to the people or organizations you designate to eventually receive the assets. Just like individuals and corporations, a trust is considered a legal entity. When a person transfers assets to a trust, the assets transfer from the person and become the property of the trust.

Key Points

Make certain you know which type of trust you’re considering.

A general revocable trust will not reduce your federal tax.

Revocable trusts will help minimize or eliminate probate costs.


Trusts consist of four components: the grantor, who creates it; the beneficiaries, possibly including the grantor, who receives the income and/or principle of the trust; the assets, which is the property transferred to the trust; and the trustee, who manages the trust’s assets and distributes property according to terms established by the grantor.

Watch tax angles

Probably most common is the general revocable trust. It’s usually set up during the grantor’s lifetime, whereas the grantor retains power to amend or revoke the trust. Therefore, the grantor is generally treated as the owner of the income and assets for income, gift and estate tax purposes. A general revocable trust will not reduce or help eliminate federal estate taxes or inheritance taxes.

I can’t tell you how many times I’ve had to explain this fact to clients. Media hype, unscrupulous marketing tactics, greedy estate planners and “trust factories” are all to blame.

Why a revocable trust?

A general revocable trust will help avoid the probate process. Probate can be a very expensive undertaking. Some of us refer to the probate process as the “attorney retirement program.” Generally, a percentage of the estate is charged for probate administration. The larger the estate, the larger the percentage charged. Let’s say if only a 2% fee is charged, on larger estates the probate fee can go north of six figures very quickly. I tell clients spending a little money on a trust now will save a lot later.

A general revocable trust also gives privacy. Generally, information put before the probate court is public record. Anyone can see how many assets the deceased had, and who they were left to. A general revocable trust keeps matters private, because unless it becomes necessary, the trust doesn’t get docketed with the court.

This trust also provides asset management. At incapacity, the trust provides for a succession of the trustee position without the requirements of a court proceeding by way of guardianship, conservatorship or otherwise.

However, if you establish a revocable trust, make sure all assets are included. Failure to include all assets could leave you having to probate assets left out. Your heirs will pull double duty administering the trust and the omitted assets through probate.

Schwarz II farms 2,500 acres with his family near Stroh. He’s an agricultural attorney and farm estate planner. Reach him at 260-665-0779, or jschwarz@cresslaw.com. Learn more at www.farmlegacy.com. These articles are for general purposes only and do not constitute an attorney-client relationship.

This article published in the January, 2011 edition of INDIANA PRAIRIE FARMER.

All rights reserved. Copyright Farm Progress Cos. 2011.