In Maryland, you create a trust account by signing a notarized Declaration of Trust, funding the account and transferring ownership to a trustee. That trustee has a fiduciary responsibility to work on behalf of the beneficiaries, manage the account and distribute funds according to the Declaration’s directives. The account may hold real estate, art, jewels, stocks and other valuable assets in addition to currency.
Because trusts are not usually subject to the probate process, they are a viable option for estate planning. Upon the death of the original grantor, most trusts will continue to exist.
In addition to concerns about interrupted distributions, increased privacy is another reason someone may open a trust account. Trust distributions are private and are not subject to the public probate process as would be the case with a will.
There are two basic types of trusts — revocable and irrevocable. Understanding the distinction between them is essential because they have different management options, directive flexibility and tax consequences.
Revocable living trusts
When a grantor names itself as the trustee and continues to control the assets, this is called a revocable trust. The trustee may revoke or change directives and terminate the account at will. The trustee pays personal taxes on income-generating assets, and creditors may seize the account’s contents.
When the grantor dies, the account transitions to an irrevocable trust.
Irrevocable living trusts
An irrevocable trust has a third-party trustee, and the grantor relinquishes ownership and control of the assets. A trustee cannot usually alter the directives and pays the trust’s income taxes from the account’s funds. A court order may terminate an irrevocable trust once directives are satisfied or become irrelevant.