What is a trust, and do I need one?

A trust is a legal arrangement that allows the person creating the trust to control how and when a beneficiary will receive assets. Here are the key players involved in a trust arrangement:

  • Settlor. The settlor is the person who establishes the trust. The settlor gives his property to a trustee for the benefit of one or more beneficiaries.
  • Trustee. The trustee holds and manages the settlor’s assets for the benefit of the beneficiaries. The trustee must act in accordance with the terms of the trust and North Carolina law.
  • Beneficiary. The beneficiary receives distributions from the trustee of the trust. How and when the beneficiary may receive trust assets is up to the settlor.

Although your particular situation may not call for the creation of a trust, trusts offer several advantages:

  • Probate Avoidance. Assets held in trust at your death will not pass through the probate process and will avoid public disclosure. Your trustee will have the flexibility to carry out your wishes without the requirement of filing paperwork with the clerk of court. Assets owned by your trust will also not be subject to a probate fee. 

 

  • Added Control. In a trust agreement, you can specify exactly how and when your beneficiaries receive your assets. For example, let’s assume you have an 18-year-old son and a 20-year-old daughter. You may not want to leave a large sum of money to them all at once when you die. With a trust, you have the option of giving them ½ of their share when they turn 25 and the remaining portion when they turn 30, for example. The ages and amounts are up to you.

It is also possible to allow for distributions for specific purposes that may arise such as for health or educational expenses. In the example above, you could also allow distributions to your children before they reach those designated ages if the distributions are for legitimate health or educational needs.

Some people even choose to instill values into their beneficiaries by incorporating requirements for beneficiaries to meet before becoming eligible for trust distributions. For example, a parent may require a child to graduate college before receiving a distribution. Distributions may also be allowed for a purpose such as starting a business, to encourage entrepreneurship.

 

  • Safeguarding your Legacy. Trusts are often used to protect assets from a beneficiary’s creditors. If your heir is sued or goes bankrupt, you wouldn’t want your assets going to your heir’s creditors. For example, let’s say you die and the next year, your 21-year-old son and sole beneficiary causes a car accident. If you left all your money to him outright in your Will, that money is all fair game in a lawsuit. Conversely, you would have protected your legacy had you left your assets to your son in a properly drafted trust. Sometimes trusts are also used to protect assets from the beneficiary himself—particularly if the beneficiary is not financially savvy or responsible.

 

While trusts offer certain robust advantages, you should review whether you need one with your attorney. Creating a trust involves certain up-front costs and will require active management down the road. If you would like to discuss whether a trust may be right for you, please don’t hesitate to contact a trust attorney here at Bell, Davis & Pitt.

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About the Authors

John Cocklereece headshot

John A. Cocklereece, Jr.

John Cocklereece concentrates his practice on property tax appeals, business law, tax controversies, and estate planning and administration.
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Attorney Travis Woolen

Travis Woolen

Travis joined Bell, Davis & Pitt as a trusts and estates attorney shortly after graduating from the University of North Carolina School of Law. Prior to joining Bell, Davis & Pitt, he worked as a loan officer at a financial institution in Raleigh for several years.
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