What is a Convenience Trust?

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Types of trusts used in extate planning

Tell me about a Convenience Trust

A Convenience Trust is a trust that permits the beneficiary to withdraw the assets at any time for any reason without restriction. It gives almost as much control of the inheritance to a beneficiary as an outright distribution. However, it may provide some protections, provided that he or she leaves the assets in the trust, and there is a way for another trustee to take over to protect the trust in the event of an attack by a creditor or predator. This is generally the least protective type of trust.

With this arrangement, the inheritance is distributed to a trust, but the child can withdraw the trust assets at any time and for any reason, just by requesting it.  There may be an independent trustee managing the trust, or the child may be their own trustee or co-trustee.  Since no one can force the child to withdraw the income and principal from the trust, the convenience trust offers some creditor protection, and perhaps a mental barrier to withdrawing the trust’s assets, but not much else.  This also can act as a separate property trust, so that the child’s spouse cannot access the inheritance.

Important takeaways about convenience trusts

  • A convenience trust is established to let another person use the funds for the benefit of the owner, such as to pay their bills and run errands.
  • Convenience trusts are not joint accounts, and they become part of the owner’s estate when they pass away.
  • The co-signer cannot use the funds at all after the person’s passing, even for funeral or estate expenses.
  • Only some states have convenience accounts. In others, informal convenience designations will be treated as joint accounts unless the co-signer objects.

Basic Information About Trusts

The most basic type of trust that exists is the revocable trust. That is not to say that revocable trusts cannot be complex. In fact, provisions in revocable trusts can be extremely complex. However, revocable trusts are basic devices because the consequences of setting up revocable trusts are reversible. Aside from the effort and expense to set up a trust in the first place, there is little or no risk in setting up and funding a revocable trust.

Revocable living trusts can be revoked by the grantor at any time. As they can be revoked, they can also be changed, altered or modified by the grantor at any time. As such, the revocable trust is an extremely flexible device. Revocable trusts typically call for their assets to be distributed upon the death of the grantor (or grantors, as is often the case when a married couple creates a joint revocable trust). Due to this feature, the revocable trust is often referred to as a “will substitute.”

It is used as the main estate planning mechanism of a person or couple instead of or in addition to a will. Instead of executing a Will that dictates what will happen to the person’s assets upon death, the trust holds the assets during the person’s lifetime. It provides detailed instructions on how the trust assets will be distributed after death. In this way, it essentially does the same thing as a will.