As Alabama estate planning and elder law attorneys, one of the most frequently asked questions we get is "What is a Trust?"
One of the most frequently asked questions people ask when are doing their estate planning here in Alabama is: What is a trust? Many people have heard of a trust but are not always sure what it is, and it sounds complicated so some people don't even look into it. But, trust-based planning can be a great way to avoid probate in Alabama and to carry out your wishes with your assets at your death, but more importantly, to protect those assets from predators and creditors while you are still alive.
A trust is a document drafted to create a legal entity that can own assets. If you set up a trust and transfer your assets into the trust, the trust now owns the asset instead of you owning it. However, when you set the trust up, you can decide who is in control of the trust. That person is called the trustee and can be you.
There are two types of trusts One is a revocable trust and the other one is a irrevocable trust. A revocable trust is like a piggy bank you had when you were a kid that had a slot at the top to put money in, but also had a stopper in the bottom so you could take money back out. That is the way a revocable trust works. You can put stuff in but you can always take it back out if you want to do so.
An irrevocable trust is like a piggy bank that has a slot in the top but no stopper in the bottom so that once you put the asset into the piggy bank you cannot get it back out. You might wonder “why would I ever want to do something like that?" The reason to put assets in an irrevocable trust is that it can provide asset protection and keep your assets from being taken by creditors and predators like bankruptcy, lawsuits, divorce and long term costs and other things like that.
When you put assets in a trust you no longer own them individually. The trust now owns them. Another benefit is that when you pass away, your loved ones do not have to go through probate for any assets that are in the trust because it is all in the trust. The trust itself will tell how those assets are to be dispersed to your heirs at your death.
Trusts can also be used to provide asset protection for your children and grandchildren. You can put restrictions on how the assets are dispersed to your heirs at your death to prevent them from losing assets to divorce or a spendthrift child or bankruptcy, or even a child who has an addiction problem who should not be getting money outright, but instead has conditions and terms as to when they get those assets.
Again, a trust is just a legal document that is drawn up that then becomes your rule book, so to speak, as to how your assets are managed.
To learn more about estate planning, how to avoid probate and make it easy on your family if something happens to you, click the link to receive a copy of our book on The Basics of Estate Planning in Alabama or visit events.adamsmillerlaw.com/Workshops.html to register for one of our free estate planning workshops or simply call us at 256 251-2137.