At its most basic form, a Trust is a type of organization managed by a single or mutable Trustees. What this means for you is that your Trust acts as a separate entity from you in your individual capacity, so when the Settlors of the trust – the person or persons who form the Trust die, the trust lives on. Now telling someone they need a trust is a lot like saying they need a car, there are many kinds and many purposes. A trust can have the sole purpose to avoid Probate Court, or a trust can be as complex as reducing the Estate Tax by thousands of dollars. This is the equivalent of a Ford Taurus to a Lamborghini. Both are “cars” and they will both drive, but they have different purposes, and vastly different costs.
So what “kinds” of trust are there? First, there is the basic trust that, at its core, is all about avoiding probate. This is when you transfer your personal possessions to the Trust and the Trustee(s) of the trust for safe keeping, and you plan who the beneficiaries of the Trust are(you would be the initial beneficiary most of the time) and the beneficiaries would be the ultimate people to receive the property you would transfer into the Trust.
The other “kinds” of trust start to allow you, as the Settlor, to be able to control your property after you have passed on. This allows you to direct the Trustee on what to do, and who to take care of, when to take care of them, and so on.
Take for example, the choice of a family with small children who is considering what level of protection they need if one, or both parents were to pass on. When considering the choice of only a Last Will and Testament or a Living Trust, why would they want to consider having a Living Trust? Now, some hypothetical facts to consider, this family has two children, ages 5 and 8, they do not have a positive net worth just yet, but they have a sufficient level of life insurance for the family, the Husband has $500,000.00 of insurance and the wife has $350,000.00. So if something happened to both of the parents, the two children would be left with $850,000.00. Now, with a Last Will and Testament, you can direct who is going to be the guardians of the two children, and you can direct who is going to take care of the money, but once the Probate Court decided that those were the proper people, there is no oversight. Now you may trust your family member to take care of your children, but do you also trust them to take care of the $850,000.00 you have provided them to take care of the two children for at least the next 17 years?
With a Living Trust, the money would be added to the Trust, so that now instead of just having an uncle or aunt handle the money, you have a Trustee handling the money, and when a Trustee handles the money, there are certain rules, and regulations that that trustee has to follow. One of the rules is that the Trustee does whatever is written down in the Trust document. If they do not, the children have an action against the Trustee. This means that the person who is keeping the money is much more accountable to the children and to the Court if there is an issue with misuse of funds.
Other trust, or provisions in your Arkansas Trust deal with tax reduction, dealing with a small family business, and asset protection. These Trusts are very customized to deal with your exact situation, for which there are very few circumstances where they are the same.