While a Last Will and Testament usually serves as the foundation of the average estate plan, additional tools and documents are often added to that foundation to create a more comprehensive estate plan. For many people, a trust is one of those additional tools. If you are contemplating the addition of a trust agreement to your estate plan, you undoubtedly want to learn as much as possible about how a trust operates and what happens to assets after they are transferred into a trust. Toward that end, the Arkansas attorneys at Wilcox Attorneys, PA discuss your ability to control assets after they are transferred into a trust.
Trust Fundamentals
The fundamental concept underlying a trust a legal relationship that allows the Settlor (the individual creating the trust) to appoint a Trustee who is empowered to protect and manage assets designated for the benefit of a third-party beneficiary (or beneficiaries). A trust agreement is the legal document used to establish a trust. A living trust is a trust that is created and managed during the Settlor’s lifetime, while a testamentary trust is established through a provision in the Settlor’s Last Will and Testament and only activates after the death of the Settlor. Living trusts can be either revocable or irrevocable, referring to the Settlor’s ability to modify or revoke the trust after it activates. Because a testamentary trust does is not formally established until after the death of the Settlor, these trusts are considered irrevocable once activated.
Trust Assets and a Settlor’s Ability to Control Them
Once a trust agreement has been created, the trust must be funded. Almost any kind of assets can be used to fund a trust, including cash, real estate, securities, life insurance proceeds, and personal property. Assets transferred into a trust become trust property; however, a Settlor’s ability to exercise continued control over those assets will depend on the type of trust created and the terms of the trust.
If the Settlor creates a revocable living trust, the Settlor retains the ability to modify the trust at any time and for any reason. Consequently, the Settlor can transfer assets back out of the trust as easily as transferring assets into the trust. This authority effectively allows the Settlor to maintain the ability to regain control over the trust assets at any time.
In addition, a Settlor can also appoint himself/herself to be the Trustee of the trust; although, it is not always strategically wise to do so. Because the Trustee of a trust manages the trust assets, a Settlor who is also the Trustee maintains direct control over the trust assets throughout the time they are held by the trust. Often, a revocable living trust is used as an incapacity planning tool allowing the Settlor to retain control over trust assets (as the Trustee) unless the Settlor/Trustee becomes incapacitated at which time control over the trust assets automatically passes to the designated successor Trustee, usually a spouse, parent, or adult child.
In the case of an irrevocable trust, however, a Settlor loses control over trust assets as soon as they are transferred into the trust. An irrevocable trust is frequently used as an asset protection tool because of the fact that the assets are out of the reach of the Settlor once they become trust assets. The trust itself is legally viewed as a separate legal entity that is then considered the legal owner of the trust assets. Those assets cannot be accessed by the Settlor, but they also remain out of reach of creditors or other third parties. While it is legally allowable to name yourself as the Trustee of an irrevocable trust, doing so would negate the asset protection benefits offered by such a trust, making it practically ill advised.
Because assets are not transferred into a testamentary trust until after the death of the Settlor, those assets remain in the Settlor’s control throughout his/her lifetime.
Do You Have Additional Questions about a Your Ability to Control Trust Assets?
For additional information, please download our FREE estate planning worksheet. If you have additional questions about controlling trust assets, contact the experienced Washington County, Fayetteville, Springdale, Rogers, Bentonville, and Northwest Arkansas trust attorneys at Wilcox Attorneys, PA by calling 479-443-0062 to schedule your appointment today.
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