A trust is a legal entity that allows you to manage your assets in different ways. It is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries.” It is not used just by wealthy people to avoid estate taxes but by people of various economic backgrounds who want to accomplish certain goals such as: pass assets to their children, avoid probate, plan for disability, and maintain continuity of a business.
A trust can also enable you to control not only to whom your assets will be disbursed, but also how the money will be paid out — a crucial point if the beneficiary is a child or a family member whose ability to properly handle money is questionable. Also, money can be directed for a specific purpose or time.
A Trust survives death so a trustee can manage all trust assets until dispersed. For example, a bank account held in trust to pay bills for the home is still active, while a Durable Financial Power of Attorney is no longer valid upon death of the person who issued it and any bank account subject to the power is typically closed on death and inaccessible.
By creating a trust, you can:
- Determine where your assets go and when your beneficiaries have access to them.
- Save your beneficiaries (your children, for example) from paying estate taxes and court fees.
- Protect your assets from creditors that your beneficiaries may have, or from loss through divorce settlements.
- Direct where remaining assets should go in the event of a beneficiary’s death. This can be helpful in a family that includes second marriages and step-children.
- Avoid a lengthy probate court process that can drag on for months or even years and become a public spectacle as well. With a trust, much of that delay can be avoided, and the entire process is private.
- Settling an estate through a traditional will may trigger the probate court process, in which a judge, not your children or other beneficiaries, has final say on who gets what. This is a lengthy, time consuming process that is better avoided in most cases.
- A Trust can protect privacy by saving your beneficiaries from unwanted scrutiny or solicitation
- If you have children who live out of state it is a good idea to have one person in control to manage all assets. Rather than having every decision subject to approval of multiple persons.
- A Trust can pass assets quickly
- There are many kinds of trusts such as – Living trusts, Revocable and Irrevocable trusts Marital or “A” trusts, Credit Shelter Trusts, Special Needs Trusts, and Charitable Remainder Trusts.
Living Trusts are the most popular trusts created. A Living Trust allows you to place assets in a trust while you are alive, with control of the trust transfers upon your death to beneficiaries that you have designated. You might consider creating a living trust for one of several reasons:
- If you would like someone else to accept management responsibility for some or all of your property.
- If you want financial affairs to be uninterrupted upon your death
- If you have a business and want to ensure it operates smoothly with no interruption of income flow in the event of your death or disability.
- If you want to protect your assets from the incompetency or incapacity of yourself or your beneficiaries.
- If you wish to minimize the chance that your will may be contested.
An estate planning attorney can provide you with expert advice about whether a trust could be a useful component in your long-term financial plan.
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