A trust agreement is a common and important component of an average estate plan. If you’re considering adding a trust to your estate plan, you likely have numerous questions about trusts and the advantages of establishing one. You may also be curious about your ability to maintain control over assets once they’ve been placed into a trust. To assist you in comprehending how a trust fits into your estate plan, the Essex Junction attorneys at Unsworth LaPlante, PLLC examine whether you can still exercise control over assets that have been transferred into a trust.
A trust is established through a legal document known as a trust agreement. The fundamental concept of a trust involves a legal relationship that allows the Settlor (the individual creating the trust) to appoint a Trustee to safeguard and manage assets designated for the benefit of a third-party beneficiary (or beneficiaries). A trust created and managed during the Settlor’s lifetime is referred to as a living trust, while a testamentary trust is established through a provision in the Settlor’s Last Will and Testament and becomes effective only after the Settlor’s passing. Living trusts can be either revocable or irrevocable, and this distinction is crucial when discussing control over trust assets. In the case of a testamentary trust, it is always considered irrevocable once activated due to the Settlor’s absence.
Understanding Control Over Trust Assets
A trust can be funded with various types of assets, including cash, real estate, securities, life insurance proceeds, and other valuable items. Once an asset has been transferred into a trust, it becomes the property of the trust. Before creating a trust and transferring assets into it, it’s essential to have a clear understanding of your ability to maintain control over assets held by the trust. This level of control, or lack thereof, largely depends on the type of trust and whether you serve as the Trustee.
In the case of a revocable living trust, the Settlor retains the authority to modify or revoke the trust at any time, which includes the ability to transfer assets into or out of the trust. As the Settlor, you can remove an asset from the trust if you wish to regain control over it. Trust assets are managed and controlled by the Trustee, and in many instances, the Settlor also serves as the Trustee. This is often the case when a revocable living trust is created as part of an overall incapacity plan. If you appoint yourself as the Trustee, you can maintain control over the trust assets without the need to transfer them in or out of the trust.
Conversely, with an irrevocable living trust, the Settlor has no control over assets once they’re transferred into the trust, and there’s no ability to move them out of the trust. The lack of control over assets held in an irrevocable trust is precisely why these trusts are employed for asset protection. The trust itself is a separate legal entity, and because it’s irrevocable, assets placed into it become trust property, under the control of the Trustee. While it’s technically possible to name yourself as the Trustee of an irrevocable trust, doing so would negate the asset protection benefits these trusts offer. In practice, assets transferred into an irrevocable trust created by you remain beyond your control.
In the case of a testamentary trust, you maintain the ability to modify or revoke the trust’s terms until your passing, at which point the trust becomes active and effectively becomes irrevocable.
Do You Have Questions about Trusts?
For more information, please attend one of our upcoming FREE webinars. If you still have questions about your ability to control trust assets, contact an experienced Essex Junction trust attorney at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.