Alphabet Soup: Which Trust is Right for Me?
- RLT, APT, SNT, SLAT, MAPT, GRAT, CRT, ILT -
You may be wondering: what do all of these acronyms mean and how do they pertain to me? If you have spent any time searching the internet for advice on what kind of Trust is right for you, then you have probably come across some of these terms, and many others. One website may recommend a Revocable Trust, while other websites may recommend a Testamentary Trust - what is the difference, and how do you know what is right for you? This article attempts to clarify some of the confusion and invites you to educate yourself in a manner that is non-attorney friendly.
So what Trust is best? A lawyer’s favorite answer: it depends. It depends on a lot of factors, but most importantly - what are your goals? Why are you seeking legal planning in the first place? Are you here because your neighbor put her house in a Trust? Are you looking to avoid probate? Protect assets from creditors? What about estate tax? A Trust is a multi-use tool that accommodates a wide variety of purposes and needs. Each Trust is different, not only in structure, but customized for the individual Grantor, or owner.
Although each Trust is highly customizable, and differs in may ways, they all share a similar construction. But what is a Trust? To put a simple definition behind it: A Trust is an agreement between three parties to hold money. That’s it. Those three parties are 1) The Grantor 2) The Trustee and 3) The Beneficiary. Every Trust has at least one of each of these people, and sometimes Trusts have multiple in each role. Some Trusts allow the Grantor to also be the Beneficiary, where other Trusts specifically prohibit a Beneficiary from being a Trustee. It all depends on the problem your Trust is attempting to solve.
The Grantor is the person(s) who creates the Trust. They make the rules, they decide how the Trust functions, what restrictions and powers are granted under the Trust, and they supply the money or assets that fund the Trust agreement. The Trustee is the person(s) who manages the Trust. They follow the rules that the Grantor created. They act on behalf of the Trust, choose investments, sign checks, and execute deals. They operate the day-to-day activities. The Beneficiary is the person(s) for whom the Trust is created. They get to use and enjoy the property held in the Trust. The Trust is there to provide for the Beneficiary.
Once you have this simple structure in place, you can start to name the persons in each role. If you are making the rules, then you are likely the Grantor. If your children, for instance, get to spend the money, they are the beneficiaries. But do you want your children holding the checkbook, or does that responsibility go to their Aunt? If so, perhaps she is the Trustee. These are simple examples to illustrate that once you have identified the purpose of your Trust, the structure starts to fall into place.
But what about all of those acronyms? The acronyms are just ways that attorneys have defined Trusts which were written to accomplish specific goals. For instance, an APT means “Asset Protection Trust” the purpose of which is self evident. Assets held by this Trust are ideally protected from certain creditors.
The acronym behind the Trust is less important than the words written within. We can name a Trust any acronym we like, but if it is not prepared properly then it may not accomplish the goal that was designed at the outset. This is why it becomes so vital to work with a specialized professional who understands the nuances of each kind of Trust. A Trust that is created by someone who does not know what they are doing, or downloading a “boiler plate” Trust off the internet can lead to disaster - and may require a trained professional to fully decipher (and hopefully fix) that Trust.
At Rune Law, our primary focus is on Estate Planning, which encompasses Trust creation. Speaking with a trained attorney to help design, plan, and structure a Trust that accomplishes your goals may bring peace of mind in your planning. Education is a huge part of our mission - ensuring that our clients understand not just what they are creating, but why they are creating it and how it works. Schedule a meeting today to speak with an attorney and learn more!
-Nick
