How To Handle A Trust In Estate Planning

Trust in estate planning

Incorporating a Trust in estate planning comes with several benefits especially when combined with a Will.  In fact, Trusts are recommendable when you want to protect your assets, save on taxes, and avoid the tedious probate process.

However, Trusts risk, among others, having your hard-earned wealth scattered in the hands of an unscrupulous person. Therefore, the need for due diligence cannot be overemphasized, especially when you have family conflicts, special cases, and a complex estate.

You also want to know what is expected of a trustee and whether you can change them when necessary.

Key Takeaways

  • Wills and Trusts are two crucial estate planning tools with different levels of control, privacy, taxation implications, and probate processes.
  • A Trust is a legally binding agreement establishing a way to channel direct benefits to heirs and beneficiaries from the estate.
  • Professional advice from an attorney or financial advisor can help make the best choices based on individual objectives and circumstances.

What is A Trust in Estate Planning?

Trust in estate planning


A Trust or Family Trust is a legally binding agreement establishing a way to channel direct benefits to heirs and beneficiaries from the estate. The person named to administer or manage the Trust is the “Trustee,” while the person creating the Trust is the “grantor.”

The third party in the agreement is the beneficiaries, who are expected to receive their share of the inheritance upon the grantor’s demise. A Trust allows the heirs to formally benefit from the estate when the grantor is still alive.

Besides, Trusts offer the best chances to witness how your estate settlement would look like, and the likely obstacles heirs are likely to encounter along the way. In this case, making the necessary reforms and updating your trust as children grow and circumstances change would be easy.

What Is the Difference Between a Trust and A Will?

Contesting a will due to mental incapacity

A will

A Trust in estate planning can be enforced immediately, but a Will has to wait until the testator dies. Besides, estate settlement through a Trust is quicker than through a Will as you won’t need to undergo the potentially tedious probate process.

A Will in estate settlement must undergo the probate process where the executor is approved, or a new administrator is chosen. Our Probate Court Process guide explains that the probate process publicizes documents, exposing personal details and wealth.

However, Trusts operate in privacy, and you don’t need court approval from your trustee. So, if, unfortunately, the grantor passes on, estate settlement would proceed without a glitch or delay. Most importantly, the process would take place away from the publicization witnessed in probate processes.

Can I Have Both a Will and a Living Trust?

Yes. You can have both a Will and a Trust for your estate plan. However, this strategy is not recommendable when considering the publicity and time used through probate. Instead, it would be best if you opted for the Pour Over Will, designated to allow everything to go to your Trust upon your demise.

What Is Irrevocable Trust in Estate Settlement?

As the name suggests, the irrevocable Trust in estate planning is a type you cannot reverse or change after signing. This type of Trust is feared for its lack of flexibility and control but revered for the asset protection and estate tax savings it comes with. Once you sign an irrevocable trust with a Trust, it is assumed that the estate is no longer under your control, so you can’t be taxed.

Revocable Trusts

Revocable Trusts are also called Living Trusts and provide the grantor with adaptability in their estate plan. As the name suggests, grantors can revoke this type of Trust and regain complete control of their estate.

Do I Have to Pay Taxes on Trusts?

Once the grantor transfers the estate to the irrevocable Trust, it technically ceases appearing in their portfolio and hence cannot be taxed. For this reason, creditors or tax agencies cannot place a lien on the assets.

Estate distribution for each beneficiary may be taxable based on the type of trust, the kind of distribution, and the beneficiary’s tax bracket. Irrevocable trust shields your assets from creditors and significantly reduces your tax liabilities than revocable Trust.

The most common types of estate distributions include real estate, stocks, cash, and other assets. So, whatever you receive may not be taxable, but it may have generated income, interests, or owed taxes. In this case, the estate executor or administrator pays these before the distribution.

How To Set Up A Family Trust In Estate Planning

Instructions on how to set up a trust in estate planning

The trust should be professional

Setting up a family Trust involves drafting and signing a Trust Agreement listing all assets and beneficiaries. The document should also clearly state the Trustee and your personal provision on how they should manage every asset.

Consult your estate planning attorney when drafting the document to ensure you capture all the parts. The attorney will help the Trust to complement the Will and make other crucial decisions like dedicating heirs’ property and appointing guardians for your children.

Once the agreement is signed and legally binding, you can move assets to the Trust. This means retitling them from your own to Trust-owned. You simply need to approach institutions holding your stocks, assets, or accounts and finalize the process.

What Is the Job of a Trust in Estate Settlement?

A successor trustee must administer the Trust according to the grantor’s wishes. Some of the responsibilities include:

  • Compiling an inventory showing the necessary assets.
  • Keeping records for annual accountings and making them accessible to the grantor or beneficiaries.
  • Meeting all credit and tax obligations on behalf of the grantor.
  • Keep all parties informed about any significant decision about the estate or Trust.
  • Following the Trust instructions to the letter.

What Are the Fiduciary Duties of a Trustee?

The agent should understand your retirement Benefits plan

Trusts have a fiduciary duty

Fiduciary duties for estate executors/administrators and Trusts are similar. Both act as the beneficiaries’ personal representatives; hence, they must take special care and remain legally confined.

While the fiduciary duties of a Trustee may vary with state, here’s a breakdown of what to expect.

Trustees have a fiduciary duty to:

  • Follow the trust instrument
  • Prioritize the interests of the beneficiaries.
  • Treat all beneficiaries fairly.
  • Do not misuse the trust property.
  • Grow the estate and keep it vibrant.
  • Keep different properties separate.
  • Litigate when the estate is under threat.

As a beneficiary, you should understand the Trustee’s responsibilities to know when they go overboard and what to do.

Also, the Trustee should take time to understand the responsibilities ahead to avoid conflicts, confusion, or facing fiduciary misconduct claims.

How To Close a Trust After Death

An executor has a fiduciary duty

Executors have a fiduciary duty

The person named as the successor trustee is responsible for terminating the trust according to the Trust terms. Usually, trusts in estate planning are distributed entirely soon after the death of the grantor. However, grantors may design their Trusts to remain open in the long run.

With most states prohibiting minors from handling their inheritance until adulthood, the grantor may plan to keep the trust open for years after death to serve the purpose. Similarly, a grantor could keep the Trust open longer if they think giving a lumpsum amount to an adult beneficiary would be detrimental. The trust instrument can include any specific condition by the grantor.

Below are the final steps of a Trust after the grantor’s death

  1. Locate and Review Relevant Documents: The first task is to gather all the relevant documents, like death certificates and trust instruments, to help commence asset distribution.
  2. Notify Heirs and Beneficiaries: Trustees are required by law to notify the heirs and beneficiaries of the start of asset administration about 60 days after they assumed the position or from the grantor’s date of death.
  3. Create an Inventory: Start the process of accounting for all the assets included in the trust instrument, indicating the value at the time of the grantor’s death. As a trustee, you should not value the asset yourself but should seek the help of a probate referee or appraiser.
  4. Settle Claims: Trusts should prioritize paying off valid debts and taxes before distributing assets to beneficiaries. A certified public accountant (CPA) would help handle all the claims and keep the records accurate.
  5. Distribute Assets per Terms of Trust: The final step involves distributing the assets to beneficiaries according to the Trust provisions. As a trustee, keep full documentation showing the transfer and any other relevant information. The paperwork should be proof that all beneficiaries received their share.

How To Contest a Trust in Estate Planning

Contesting a trust in estate planning

Contesting a trust

The compelling grounds for contesting a trust include:

  • Unfair exclusion from the Trust,
  • unfair terms of the Trust,
  • Trustee’s misconduct,
  • undue influence,
  • elder abuse,
  • fraud,
  • lack of capacity,
  • revocation,
  • mistake

Contesting a will can be challenging if your reason falls outside these grounds or any other obligation highlighted heretofore.

Nonetheless, a trust lawyer can help you better understand the laws in your jurisdiction and help formulate a plan.

Who Can Contest A Trust in Estate Planning?

Like contesting a Will, contesting a Trust in estate planning requires some legal standing, as you will likely be directly affected by the Trust. This included beneficiaries, heirs, or a trustee.

Some Trusts may include the no-contest clause, depriving the beneficiary of their benefits if they contest.

The Legal Process of Contesting a Trust

As you take guidelines from your estate planning attorney, you should familiarize yourself with the legal process to plan accordingly.

  1. File a Petition: Your trust attorney will help you file a petition with the probate court, which presents your case and the grounds for contesting.
  2. Notify Involved Parties: Once you file the petition, you must notify heirs, beneficiaries, and trustees so they can have a chance to respond and defend the trust.
  3. Discovery: This phase involves gathering evidence from the parties and supporting your case.
  4. Settlement: The last phase involves parties having an amicable negotiation or having the court decide.

What Happens After a Successful Trust Contest?

A woman celebrating after successful trust contest


If you successfully contest a Trust in estate planning and it is considered invalid by a court of law, the Trustee and the agreements are no longer relevant. In the absence of other valid estate planning agreements like a Will, the assets in the Trust will become intestate and subject to laws of intestacy (dying without a Will).

The probate process commences, and all the potential heirs are searched for succession. According to intestacy laws, inheritance should go to the surviving spouse and children. However, if a spouse and children do not exist, the inheritance goes to parents and siblings.

Understanding Trust in estate planning and distinguishing it from a Will is crucial to streamlining your estate plan. Trusts have become a darling for people looking to have everything working by the time they die.

Similarly, understanding Trusts can help you quickly spot fraud or misconduct and take necessary steps. However, the processes are easier said than done, and it is advisable to always seek professional assistance when planning to participate in any legal action.

You can avoid the stress relating to Trusts by hiring an expert from Record Click to help you smoothly work out everything.

Contact us today to schedule a private consultation to start the process.

See Record Click’s Heir Research Services, Costs, And Expectations.