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Natural Steaming Mud

TRUSTS

WHAT IS A TRUST?

A trust is a legal arrangement in which one party, known as the trustee, holds and manages assets for the benefit of another party, called the beneficiary. The person who creates the trust is known as the grantor or settlor. Trusts are commonly used to manage and protect assets, ensure they are distributed according to the grantor’s wishes, and provide tax benefits.

WILLS VS. TRUSTS

WILL

  • Sets out who gets what and how

  • No impact on lifetime control

  • Probate is generally required

  • Administration Is by personal representatives or executors (named by person in their will or by the court if no one is named)

  • No re-titling of assets is required

  • Effective upon death (not incapacity)

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REVOCABLE LIVING TRUST

  • Sets out who gets what and how

  • No impact on lifetime control

  • Avoids probate

  • Administration is by a trustee (trust-maker can name a lineup of successor trustees)

  • Requires funding (transfer and re-titling of assets)

  • Effective upon death or incapacity

PROS & CONS OF TRUSTS

PROS

  • Avoid Probate: Trusts can help bypass the lengthy and costly probate process, allowing for quicker asset distribution.

  • Privacy: Unlike wills, trusts are not public documents, so they offer greater privacy.

  • Control: Grantors can specify how and when assets are distributed, which is particularly useful for minor beneficiaries.

  • Protection: Trusts can protect assets from creditors and legal claims.

  • Tax Benefits: Certain types of trusts can offer significant tax advantages.

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CONS

  • Cost: Establishing and maintaining a trust can be more expensive than writing a will.

  • Complexity: Trusts can be complicated to set up and require careful planning and legal assistance.

  • Ongoing Management: Trusts require continuous management, which may involve administrative duties and fees.

TYPES OF TRUSTS

Revocable Trusts

  • Description: A revocable trust, also known as a living trust, can be altered or revoked by the grantor at any time during their lifetime. 

  • When to Use: Ideal for estate planning flexibility. The grantor can make changes as circumstances evolve, such as marriage, birth of a child, or changes in financial status.

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Irrevocable Trusts

  • Description: Once established, an irrevocable trust cannot be changed or revoked by the grantor. 

  • When to Use: Suitable for protecting assets from creditors, reducing estate taxes, and ensuring specific asset distribution that cannot be altered.

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Testamentary Trusts

  • Description: Created through a will and only takes effect after the grantor’s death. 

  • When to Use: Useful for managing and distributing assets according to specific wishes outlined in a will, especially for minor children or special needs dependents.

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Charitable Trusts

  • Description: Established to benefit a charitable organization or purpose. 

  • When to Use: Ideal for individuals who want to support charitable causes while also receiving tax benefits.

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​Special Needs Trusts

  • Description: Designed to provide for a beneficiary with special needs without disqualifying them from government assistance programs. 

  • When to Use: Essential for ensuring long-term financial support for a disabled individual without affecting their eligibility for public benefits.

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Spendthrift Trusts

  • Description: Provides financial support to beneficiaries while protecting the trust assets from their creditors. 

  • When to Use: Suitable for beneficiaries who may not be financially responsible, as it limits their access to the principal while providing regular disbursements.

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Pet Trusts

  • Description: A pet trust is a legal arrangement that ensures the care and maintenance of a pet after the owner's death or incapacitation.

  • When to Use: A pet trust should be used when an individual wants to provide for the ongoing care and well-being of their pets and ensure they are cared for according to specific instructions.

TRUST REQUIREMENTS

Legal Capacity

The grantor must have the legal capacity to create a trust, meaning they must be at least 18 years old and of sound mind.

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Trust Document

A trust must be documented in writing, detailing the terms and conditions, the assets involved, the trustee, and the beneficiaries.

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Trustee Appointment

A trustee must be appointed to manage the trust. The trustee can be an individual or a financial institution.

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Funding the Trust

Assets must be transferred into the trust. This process is known as funding the trust and can include real estate, bank accounts, investments, and other assets.

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Notarization and Witnesses

While Illinois does not require notarization or witnesses for a trust to be valid, having the document notarized and witnessed can help prevent future legal disputes.

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