We usually don’t get too far into the sometimes boring details of technical, structural topics, but I get the question so often that I really want to take a second to explain it here.
“What is a trust?” is the question I get.
“What is a document that’s called a trust?” My best example of that is to say it’s a shoebox, okay? Alright? Okay, a trust is a shoebox. It holds things. And I’ll tell it as a story. A true story of my own life. My father died much too young at the age of 57 and during his lifetime, he had collected old tools. That is what he enjoyed doing, that’s something we did together to some extent. When he died unexpectedly, after we had many days of mourning, we opened up the shop door and found these big piles of tools. And we said, okay, this was dad’s love and legacy and hobby, how do we share this, now that he’s gone? We went about sorting out each and every one of those tools and saying, oh here’s one for me, and here’s one for you and there’s one for somebody else and we did the best we could.
Now, that was the process of probate, trying to figure out what he would want if her were there to tell us himself. That probate was not easier. Would it have been easier if we had walked into the shop and found rows upon rows of nice, neat, clean, tidy, white boxes, each of them with tools in them, and each of them with a label on the outside, with the person’s name and the details of what they wanted to have happen. Yes, that would have been easier. I would have picked up a box, and it would have had so and so’s name on it, and at the end I would have said, there you go, that’s what dad wanted. And even better if we did it during Dad’s lifetime, so HE could have been the one to hand it to them and say, “By the way, this is yours. See this box? It’s got your name on it. There you go.” Well that’s the trust. It gives us a place to hold things so that we don’t have to wonder what we intended to have happen with them. We don’t have to wonder what we intended to have happen with them, we KNOW because it was done during our lifetime.
Now that does get us to the three kinds of trust. There’s a living trust, a testamentary trust, an irrevocable trust, with the revocable being the living or testamentary. Living, or Inter Vivos, is a trust that is done while you are alive, you create it. Normally they are revocable, as in you can control them, and do whatever you want to with it. Dad had the box; he could put the tools in it. Great, no problem. That’s a living trust. It’s got my name on it; it’s got your name on it, that’s where it goes. That’s the most common word we think of for a trust. The next one is the testamentary. It’s a trust that’s created inside your will, by testament. It does not have any affect until you die. When you die, THEN that box is there. It doesn’t actually achieve the probate avoidance piece, because you had to go through probate to get it done. It does give us a holding place, but it doesn’t help clarify what should be in there as much because it happened after you’re gone. That’s not as good but it does have its purpose and there’s a lot of places we’ve talking about the way it’s used. The last one is going to be the question of if it’s irrevocable. Irrevocable means that once it’s been done, it can’t be undone. That’s done for specific other reasons, having to do with liability and tax control.
What’s a trust? It’s a shoebox. By the way, how much value would I have gotten if I had walked into that shop and found a nice, neat stack of clean boxes and a brand new marker, but the tools were still strewn all over the table. Probably little to nothing. A trust inherently has value only to the extent that you actually do fund the trust with the assets you want in there. Because if you don’t, we still have to figure out how to get them in there. That’s sort of the challenge.