What Do I Really Need to Know About Trusts?
Living Trust

What Do I Really Need to Know About Trusts?

A trust is an agreement between two parties, the settlor and a trustee. They may be used for many purposes nut all of them require the trustee to accept, manage and protect assets delivered by the trustmaker, administer those assets according to the trustmaker’s instructions, and distribute the income and principal only for the benefit of those that are named.

Kiplinger’s article “Trusts 101: Why Have a Trust?” explains that the trustee is a fiduciary and must act with reasonable care in administering the trust and selecting trust investments. She also must avoid any conflict of interest or self-dealing in holding, purchasing and selling trust assets, and diligently avoid breaching any of the trustee’s duties to the settlor and beneficiaries.

The trustee must follow the trustmaker’s terms. She must also be wise in making investment and administrative decisions and be objective and transparent.

Trusts can be created for several reasons, such as the following:

  • To oversee spending and investments to protect beneficiaries from poor decisions;
  • To avoid court-supervised probate of assets;
  • To allow for privacy;
  • To shield assets from the beneficiaries’ creditors;
  • To keep premarital assets from a division of assets between divorcing spouses;
  • To earmark funds to support the settlor, when incapacitated;
  • To manage unique assets that aren’t easily divisible, such as a vacation home or a pet;
  • To manage closely held business assets for planned business succession;
  • To hold life insurance policies, pay premiums and collect the tax-free proceeds to care for beneficiaries, fund closely held stock redemptions or purchases and provide liquidity to the estate;
  • To provide structured income to a surviving spouse that shields trust assets for descendants, if the spouse remarries; and
  • To decrease the amount of income taxes or to shelter assets from estate and transfer taxes.

A trust can be set up to achieve specific goals and give tools for the trustee to balance those goals with investment and economic factors.

The most common type is a revocable living trust. It’s usually not funded until your death. It will include your instructions for how you want your estate divided among your beneficiaries and how each person’s share is managed, administered and distributed. They are flexible, so that as children grow into adulthood, you may make changes to reflect life events.

Talk with an estate planning attorney and create your estate plan with a will and a trust.

Learn about the many benefits of a revocable living trust.

Reference: Kiplinger (June 11. 2019) “Trusts 101: Why Have a Trust?”

What Do I Need to Know About Revocable Living Trusts?
Revocable Living Trust Planning

What Do I Need to Know About Revocable Living Trusts?

A trust including a revocable living trust is a fiduciary arrangement that lets a third party (the “trustee”) hold assets on the behalf of a beneficiary. Revocable living trusts can be drafted in a variety of ways and can specify exactly how and when the assets pass to the beneficiaries.

Because trusts usually avoid probate, the beneficiaries can get access to these assets more quickly than they might if the assets were transferred using a will. If it’s an irrevocable trust, it may not be considered part of the taxable estate, which means there will be fewer taxes due at your death.

FedWeek’s recent article, “The Basics of Trusts,” explains some of the benefits of having a trust in your estate plan. Trusts can offer the following:

  • Protection for possible incompetency. You can form a trust and transfer your assets into it. You can be the trustee, and you’ll have control of the trust assets and keep the income. A successor trustee will assume control, if you’re incapacitated.
  • Avoiding probate. The assets held in trust avoid probate, which can be expensive and time-consuming. In the trust documents, you can direct the trust and provide how the trust assets will be distributed at your death.
  • Protection for heirs. After death, a trustee can keep trust assets from being spent all at once or lost in a divorce, with specific instructions in the trust document.

A trust can be revocable or irrevocable. A revocable trust has to be created during your lifetime. If you change your mind, you can cancel the trust and reclaim the assets. With a revocable trust you can enjoy incapacity protection and probate avoidance—but not tax reduction. In contrast, an irrevocable trust can be created while you’re alive or at your death (a revocable trust becomes irrevocable at your death).

Assets transferred to an irrevocable trust during your lifetime may be shielded from creditors and divorce settlements. The same is true for the assets put into an irrevocable trust at your death.

Your heirs can be the beneficiaries of an irrevocable trust. The trustee you’ve designated will be tasked with distributing funds to the beneficiaries. The trustee will be responsible for protecting trust assets.

Contact an experienced trust attorney with your questions about possibly creating a trust for your situation.

Learn more how trusts can play a very important role in your estate planning.

Reference: FedWeek (May 9, 2019) “The Basics of Trusts”