A trust serves a number of purposes in family planning. For example, it can
- Ensure that assets are professionally managed across generations;
- Protect beneficiaries from spendthrift tendencies, and minimize income taxes;
- Serve as an effective vehicle for charitable giving, as it prevents assets from becoming marital assets in the event of divorce;
- Preserve privacy and ensure that assets are passed down amongst family members, and;
- Not be subject to probate.
A trust is also a useful tool for disinheriting certain individuals. It is also a great way to prevent assets from being passed on to those you dislike. By making the arrangements in advance, you can avoid family conflicts and other issues related to estate planning. A trust is a practical solution to a difficult situation and can ensure a smooth transition of your assets to your family. It is easy to set up, so why wait?
Another reason to create a trust is to make sure your family is taken care of in case of an unexpected event. If you have a loved one who lives in an unfamiliar state, a trust can help them pay bills and file tax returns while you are away. You may not realize that creating a trust allows you to set up a lasting legacy to your family. You can choose to name your trustee or not, depending on your wishes.
Trust Types
The four main types of trust are below.
A living trust allows you to make decisions about how your estate will be distributed after you die. This is especially beneficial if you have children who are not yet old enough to manage money or other assets. You can make your living trust payouts immediately, or over time if the beneficiaries reach certain conditions. Living trusts can also be extremely beneficial for preventing accidental disinheritance. You can also set up your living trust to protect your beneficiaries from certain people in case of divorce.
A testamentary trust is set up after death according to your last will and testament. Since the terms of a testamentary trust are established in your will, and the terms can be changed at any time up until your death, this trust can be simpler and more flexible than a living trust.
A revocable trust is a living trust because it is created while the grantor is living. Its name refers to the fact that the terms of the trust can be altered during the grantor’s lifetime. The main purpose of the revocable trust is to bypass probate for the transfer of assets after death.
Unlike the revocable trust, the terms of an irrevocable trust can’t be altered after the trust is created. The main reason to create an irrevocable trust is for the trust maker, called the benefactor, to transfer assets out of their taxable estate. Income from the assets is no longer taxable to the benefactor during their lifetime and the assets are not taxable to the estate upon the death of the benefactor.
However, there are also several different kinds of trusts used in estate planning, such as:
- Charitable (CRT)
- Charitable Lead (CLAT)
- Charitable Remainder (CRAT)
- Qualified Terminable Interest Property (QTIP)
- Grantor Retained Annuity (GRAT)
- Irrevocable Life Insurance (ILIT)
- Irrevocable Funeral
- Spendthrift
- Special Needs
- Generation-Skipping
- Totten
Read about each of these trusts to determine which might be right for your situation.
Consider This
A trust can be set up under a will or separately during your lifetime. This flexibility means that you can customize your estate plan with age attainment provisions and parameters for how your assets will be used. For example, you can choose to leave money in a trust to your grandchildren once they reach the age of 18, or you can limit it to college tuition. You can also include any specific beneficiaries who need financial assistance in managing your assets.
If you already have a Will, a trust may not be necessary, though. In fact, a trust can help you create a more complex estate plan. It can also benefit large families and blended families, and people with multiple children may benefit from a trust. Using a trust can prevent any hefty estate taxes from affecting your beneficiaries as well.
Let us know if you’d like to discuss how a trust may help you.
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