For some people in Maryland, the only document they need in their estate plan is a simple will. However, for other people, particularly those who have more complex estates,establishing a trust is another option to consider.
Trusts allow the creator to retain a certain amount of control over his or her property. It is important to understand exactly what a trust is. A trust is a document in which a person's assets are taken care of by a third party on behalf of the trust's beneficiaries. Trusts can be flexible arrangements. For example, one could create a trust that allows for one's assets to be distributed in increments to the trust beneficiaries, such as when they reach certain ages.
There are a couple general kinds of trusts: living trusts and testamentary trusts. When it comes to living trusts, they can be made either irrevocable or revocable. In an irrevocable trust, the creator of the trust relinquishes control over the trust assets to the trustee. It can only be altered with the beneficiary's and trustee's consent. One advantage to this type of trust, however, is that the trust assets are removed from the creator's estate, which could have tax advantages upon the creator's death
In a revocable trust, the creator of the trust can still make changes to it prior to his or her death. This allows for flexibility as one's life circumstances change. For example, perhaps the creator of the trust divorces. A living trust could be altered so that the creator's ex-wife is no longer a beneficiary. Or, the creator of the trust may decide after the trust is set up to change the distribution of the assets to a beneficiary from a lump sum distribution to installments over time A revocable trust allows the creator of the trust to do this.
There are many specific kinds of trusts that we will discuss in a later post. However, it is important for residents of Maryland to educate themselves about all their estate planning options, so they can develop an estate plan that is right for them.