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Attorney Randy Ratliff

Simple Versus Complex Trusts

Nashville Lawyer Helping Families With Their Estate Planning Needs

You might be surprised at the wide array of estate planning tools available these days, including not only traditional documents like wills, but also a multitude of different kinds of trusts, some of which can be used to avoid probate or effectuate other purposes, like taking care of a loved one with special needs. Nashville estate planning attorney Randy Ratliff can carefully explain the pros and cons of the various options available to a particular individual or family. We want each client to fully understand the choices they are making and the consequences thereof.

Because there are so many different types of trusts, our clients often have questions such as “How do I choose between a simple versus complex trust?” The answer to this question begins with a little bit of background on what constitutes a “trust” in the eyes of the law. Simply put, a trust is a fiduciary relationship in which a trustor (the person setting up the trust; sometimes called a “settlor”) transfers assets to a second party (the “trustee”) for the benefit of a third party (called the “beneficiary”). While it sounds like three people are necessary for the creation of a trust, this is not necessarily so. Sometimes, an individual can serve multiple roles. Trusts can be either living or testamentary – meaning they can take effect during the trustor’s lifetime or at his or her death – and they can be revocable or irrevocable. A knowledgeable trusts and estates lawyer can help you navigate these potentially confusing options.

Understanding Different Types of Trusts

Trusts can also be either “simple” or “complex.” Generally speaking, when you are evaluating simple versus complex trusts, these classifications pertain to federal income taxation. A simple trust is a trust that is required to distribute 100% of its annual income to a non-charitable beneficiary or beneficiaries in the tax year that said income is earned, and this is considered taxable income to the beneficiary. The trustee of a simple trust is not allowed to distribute the principal (called the “corpus,” which includes capital gains on the original asset used to fund the trust) of the trust.

By contrast, a complex trust retains the income generated by the assets that fund the trust. A complex trust distributes the corpus of the trust and can make distributions to charitable organizations. In some circumstances, a simple trust can change into a complex trust, such as when a simple trust terminates and distributes its corpus as part of its dissolution. An irrevocable can be either simple or complex, depending upon how it is set up; both inter vivos (living) and testamentary trusts can qualify as simple trusts, as well. Basically, any trust that is not “simple” is considered to be “complex” for federal income tax purposes.

Schedule a Consultation with a Nashville Estate Planning Attorney

The process of estate planning can be intimidating, particularly when you are considering issues such as simple versus complex trusts and whether either option may be the right fit for your situation. There are so many details, contingencies, and consequences that must be considered and addressed, including not only matters such as taxation but also special family relationships, business assets, and the possibility of the need for long-term medical care in the future. At the Randy Ratliff Law Offices, PLLC, we take a comprehensive approach to the task of estate planning, carefully counseling each family or individual about his or her options. While this can be a time-consuming endeavor, we firmly believe that it is best to flush out potentially problematic situations in advance, rather than leaving matters for loved ones to deal with after someone has passed away. Not only is this approach more cost-effective, it is also much more private (if an estate is litigated, court records could be open to public inspection). If you live in the Nashville area and need to discuss your estate plan with an experienced lawyer, please give us a call at 615-656-8282 or contact us online. We help residents of both Davidson and Williamson Counties, including those who live in Nashville, Brentwood, Franklin, Cool Springs, and the surrounding area. We can also provide advice concerning charitable giving, credit shelters, and Medicaid/TennCare planning.