If you were to ask most folks the first word that pops into their head when they think of an “estate planning document,” their likely answer would be “will.” However, one of the most powerful estate planning tools is in fact a trust. If you are in the process of establishing or evaluating your estate plan, it is important that you consider and understand the usefulness of this device.
What is a “Trust”?
A trust is actually a legal entity that is controlled by a trust agreement, which is a written document setting forth all the terms of the trust, including how it is administrated.
To understand how a trust works, it helps to think of the trust as a box. When someone creates a trust, he or she puts property in the box (the trust) for the benefit of someone else. Typically, there are three kinds of people involved with a trust:
- The “Maker” or “Grantor”: This is the person who creates the trust.
- The “Beneficiaries”: A trust beneficiary is the person or people who benefit from the trust.
- The “Trustee”: The trustee is the person who oversees the trust and its administration. There can be more than one trustee as well as successor trustees who take over upon the death of the original trustee.
There are two main types of trusts: revocable and irrevocable. One of the key differences between the two has to do with the power of the maker or grantor to make changes to the trust.
In a revocable trust, the grantor is almost always the trustee – and he or she can also be a beneficiary. As the grantor and the original creator of the trust, he or she can change the trust or dissolve it completely at any time. This is what makes a trust revocable.
With some specialized exceptions, in an irrevocable trust, the trust maker cedes control of the trust to someone else. In these cases, the maker can’t serve as trustee. Additionally, most states, including New Hampshire, do not protect irrevocable trust assets from the creditors of the maker to the extent the grantor names himself as a trust beneficiary. For this reason, many irrevocable trust makers do not name themselves as trust beneficiaries.
The Benefits of an Irrevocable Trust
How you structure your irrevocable trust depends on the goals you are trying to achieve. One of the biggest reasons people establish irrevocable trusts is that it places the assets deposited in the trust beyond the reach of creditors. When you create an irrevocable trust, you no longer own the assets you place in it – the trust does. Under the right circumstances, this prevents creditors from getting at the property within the trust. Irrevocable trusts are also useful for minimizing tax liability, avoiding probate, making charitable donations, or providing for a disabled person with special needs. Additionally, New Hampshire allows the establishment of trusts that do not have a human being as its beneficiary, meaning that funds can be set aside for such things as scholarship funds, maintenance of a vacation property or other real estate, personal property, or for the care of a pet.
Is an Irrevocable Trust Really Irrevocable?
The term “irrevocable trust” is a bit inaccurate, because there are certain circumstances under which an irrevocable trust can in fact be modified. New Hampshire law allows a trustee to “decant” a trust. In short, this allows a trustee to transfer (or “decant”) assets from an old trust that may contain ambiguous or otherwise inefficient administrative provisions into a new trust for the benefit of the trust beneficiaries. Similarly, a trustee can modify or terminate an irrevocable trust if the trust agreement confers the authority to do so.
Bouchard, Kleinman & Wright, P.A.: New Hampshire Estate Planning Attorneys
Irrevocable trusts are complex legal matters that require careful planning and a thorough understanding of New Hampshire trust laws as well as a full evaluation of all estate planning options in order to establish the best estate planning structure for you. To discuss your irrevocable trust or other estate planning needs with one of our experienced attorneys, call our office today at (603) 623-7222.
This article has been prepared by Bouchard, Kleinman & Wright, P.A. for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.
Pull Quotes:
- “Irrevocable trusts are complex legal matters that require careful planning and a thorough understanding of New Hampshire trust laws and state and federal tax laws.”
- “With an irrevocable trust, however, the trust maker must cede control of the trust to someone else.”
- “One of the biggest reasons people establish irrevocable trusts is that it places the assets deposited in the trust beyond the reach of creditors.”