Trusts can accomplish a range of goals, including avoiding probate and making sure your heirs receive as much of your money as possible, as quickly as possible. Trusts also can reduce estate taxes (for those with estates larger than $5.9 million in 2018 or married couples with more than twice that amount). The type of trust you set up will depend on what your goals are. It could be to avoid taxes or make sure your family doesn’t have to wait months (or years) dealing with the probate court to inherit your assets.
What makes up a trust?
There are four main aspects to a trust: The “grantor” creates the trust; the trustee (such as a bank) agrees to hold the property or assets (this can also be the grantor); the principal (or trust corpus), which is the property or assets (including money) which is held in the trust and managed by the trustee; and the beneficiary who receives or benefits from the property or assets in the trust.
The main types of trusts
There are many different types of trusts depending on the type of assets you’re trying to protect. There are living trusts, which are immediately effective upon creation, and testamentary trusts, which become effective after your death as a result of language in your will.
There are also revocable trusts, where you retain ownership and control of the property and can change the terms of the trust, and irrevocable trusts, where you no longer own or control the property, thus making you unable to enact changes to the trust.
Choosing a funding method that supports the goals of the trust is something that you should decide with the help of a qualified estate planning attorney in your state. Transferring property to an irrevocable trust also requires that a formal transfer of property be completed, meaning that the property must be retitled in the trustee’s name. An estate planning attorney can help you complete and manage a retitling of property.
Keep in mind, the trust itself is a legal entity that is subject to taxes on the property it holds. Tax brackets for trusts are compressed, so relatively small amounts of income will push the trust into the highest tax bracket.
Choosing the right trustees
Apart from naming yourself as a trustee, there are qualities that you should be seeking in a trustee: attention to detail, a solid understanding of the duties, good communication skills, and alignment with your morals and values.
In some cases, the person best suited to be a trustee may not be your closest friend or family member but may be a friend or colleague you believe to be competent, honest, and intelligent. You may also appoint someone close to you to act as a trustee and specify to that person that you would like him or her to hire professionals to advise on certain aspects of the process. (Note: Using a professional will most likely require a fee.)
The end result: beneficiaries
Beneficiaries are the people or organization(s) you name as the recipients of any benefits of the trust. Basically, the parties you name reap the benefits.
Have you ever considered creating a trust or found the process too confusing and daunting?
This article is provided by Everplans — a life and legacy planning company dedicated to transforming the way people get their families organized. For more information, visit: everplans.com
Neither Transamerica nor its agents or representatives may provide tax, investment, or legal advice. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax and legal advisors and financial professional regarding their particular situation and the concepts presented herein.
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