The following information is provided as a general outline of terms and phrases to offer a basic understanding of trusts, estates, wills, and if you scroll towards the bottom -- "post-nup" as opposed to "pre-nup" agreements.
What is the difference between a Trust and a Will or what many refer to as a Last Will and a Living Trust?
The main difference between a Trust and a Will is the fact that your property will not go through the probate process when you die. Probate refers to the court process used to verify the validity of the will and ensure that the person’s wishes are properly carried out by the executor (the person appointed to administer the estate of the person who has died).
The executor must insure that the person's desires expressed in the will are carried out. Practical responsibilities include gathering up and protecting the assets of the estate; obtaining information in regard to all beneficiaries named in the will and any other potential heirs; collecting and arranging for payment of debts of the estate; approving or disapproving creditor's claims; making sure estate taxes are calculated; forms filed and tax payments made; and in all ways assisting the attorney for the estate (which the executor can select). The process may be expensive and time consuming. A living trust is a way to avoid probate.
In simple terms, a trust is a relationship in which a person, called a trustor, transfers something of value, called an asset to another person, called a trustee. The trustee manages and controls the asset for the benefit of a third person who is called a beneficiary.
A Living Trust
A "living trust" is legally in existence during your life. It has a trustee (who can be yourself) who is currently serving, and owns property which generally you have transferred to the trust during your life as the grantor. While you are living, the trustee is commonly responsible for managing the property as you direct for your benefit. Upon your death, the trustee is usually directed to either distribute the trust property to your beneficiaries, or to continue to hold it and manage it for the benefit of your beneficiaries.
Similar to a will, a living trust can provide for the distribution of property upon your death. Unlike a will, it can also make available for you a means to manage your property during your life and authorize the trustee to manage the property and use it for yours or your family’s benefit.
What are the uses of a trust?
Trusts can be of great benefit when properly set up and managed. One of the uses of a trust is to provide flexible control of assets for the benefit of others – such as minor children or even animals or pets (see further information about animal trusts under Animal Law).
How did trusts come into existence?
Many historians believe that the idea of trusts evolved from the time of the Roman civilization two thousand years ago. Purportedly, a Roman citizen could not transfer or pass property or assets to a non-Roman, including to children by a non-Roman mother. So Roman citizens would leave property to a Roman friend they trusted who would use the property or assets to care for the children. In this manner the use of “trust” evolved.
The idea later evolved into our English legal origins most prominently during the time of the Crusades. Knights leaving for battle entrusted their estates to the church to manage for them until their return or death at which point the property reverted to the Knight’s heirs, as opposed to the property being given to the King.
Revocable versus irrevocable trusts
Regardless of the origin, there are two categories of trust: revocable and irrevocable. A revocable trust is one that you can “revoke,” or change, while an irrevocable one cannot be changed after it is established.
Intervivos and Testmentary
When you set up a trust during your lifetime, the legal term for this type of trust is intervivos. If established upon your death by your Will, they are known as testamentary trusts.
Four components of a trust:
There are four basic components of trusts:
(1) A grantor, the person who establishes the trust;
(2) The beneficiaries, who receive the benefits of the trust, which may include income and/or principal;
(3) The assets, which are the properties transferred into the trust; and
(4) The Trustee, who is the person or entity that manages the trust's assets and distributes the property according to terms established by the grantor. A trustee may be a relative, a trusted friend, or a bank, to name a few examples.
One common misconception is that a revocable living trust saves on what is referred to as “death taxes”. The assets of a revocable living trust are subject to federal and state death taxes in exactly the same way as assets passing under the terms of a will.
Another mistaken belief is that the trust is beyond the reach of creditors. Because it’s a revocable trust, your creditors can go after those assets during your lifetime even though you have transferred ownership of the assets to the trust. However, the trust’s existence makes if difficult for creditors to reach the assets. Creditors must petition the court for an order before pursuing the trust’s assets.
In most instances, a revocable trust becomes irrevocable upon the death of the grantor if they were not originally created as irrevocable. This means that the assets in the trust can no longer be taken back, and they must be distributed to the beneficiaries of the trust. Looking again at the example of creditors -- while creditors of the deceased can try and collect from the trust assets, once the trust is irrevocable, the trust beneficiaries are usually not able to use the assets of the trust as collateral for their debts, so their creditors can’t get to the assets of the trust. While the assets are held in the trust and the beneficiaries do not have control over the property; distributions are subject to the trustee's discretion. Creditors cannot force a trustee to make a distribution to trust beneficiaries; thus the assets held in a trust can remain outside the reach of the beneficiaries' creditors as long as they are held by the trust. However, once assets are distributed to the beneficiaries, creditors can attach the distributions as they can any other property owned by the beneficiaries.
Pour-over Will
A common misconception is that a living trust replaces a last will and testament. In fact, a special type of last will, referred to as a “pour-over will”, is a companion to the living trust. Assets not transferred to the living trust are subject to probate upon the grantor's death. Because a pour-over will is used to transfer or "pour" all of the grantor's remaining property into the living trust upon his or her death, a pour-over will is usually executed simultaneously with a living trust.
Post-nup Agreement
(The following is from an article by Abigal Trafford published by the Washington Post and republished by USLaw.com)
The post-nup is a contract signed during marriage to manage financial affairs and divide income and assets in the event of death or divorce. Unheard of 25 years ago, this mid-marriage document is gaining a foothold in American matrimonial culture. It was even featured on the television program "Boston Legal." In a recent survey of members of the American Academy of Matrimonial Lawyers, 49 percent said they had seen an increase in post-nuptial agreements in the past five years.
Like its better-known cousin, the prenuptial agreement, the post-nup is responding to two demographic trends: the overall aging of the population and the increasingly common pattern of marriage, divorce and remarriage along with its complicated legacy of children from different relationships.
One purpose of the post-nup is estate planning. "That is a perfectly good reason to do it," says Jeff Atkinson, principal author of "The American Bar Association Guide to Marriage, Divorce & Families" (Random House, 2006). It is a way to direct retirement benefits to children of a previous marriage, or to an adult child with special needs. Or to make sure a beloved summer cabin stays in the family by making it separate from the couple's community property.
For my friends, the post-nup removed money as an issue in their marriage and allowed them to focus on their relationship.
To be sure, many couples fight about money -- one is a spendthrift, the other a saver. He buys a new car without consulting her. She resents the money going to college tuition for his children. And in late-life marriages, what's fair when one spouse earns more money than the other? A post-nup can give couples predictability and a sense of security about their financial future.
But using a post-nup to heal a troubled marriage is controversial.
"There are cases where that's advisable," says Gregg Herman, a family law attorney in Milwaukee. "But I only recommend it where there is an equal desire to stay married and work on the marriage." These are committed couples with "soft" problems of incompatibility, from struggling with retirement issues to coping with boredom. "Counseling and joint therapy are critical to these people," Herman says.
The post-nup is not recommended for couples who are confronting the "hard" problems: physical or mental abuse, infidelity, substance abuse. Nor for people who are really planning to break up and want to use the post-nup as a Trojan horse settlement in any future divorce battle.
Partners are rarely in the same place in a troubled relationship, and one spouse is often more committed to the marriage. The temptation is to use the post-nup as leverage to change behavior. For example, if one has a drinking problem or has had an affair but wants to preserve the marriage, the other makes staying together conditional on signing an agreement that says in effect: If you slip up again, you give up your rights -- you have to pay me a lot of money in support and I get the house, too! This kind of post-nup is really an ultimatum. Money becomes the glue of the marriage. As Herman says: "Money is rarely a good bond for keeping people together. People stay together because they love each other, not because of financial reasons."
States vary in how they view the legality of post-nup agreements. Spouses must fully disclose their income, assets and debts. They should each have legal representation -- and plenty of time to think about the terms so that neither is pressured to sign. And most important, the agreement has to be fair to both. Post-nups are held to a very high standard of fairness in financial matters, lawyers say, perhaps an even higher standard than are pre-nups.
These agreements are not about love. They can help couples deal with financial issues. But by itself, a post-nup cannot save a marriage.
SOURCE: Washington Post in an article by Abigail Trafford
