Trusts are legal vehicles for allowing third parties to hold and direct assets on behalf of beneficiaries. They can help people avoid taxes, protect their estates from creditors and heirs and dictate the terms of inheritance. Trusts are not just for the wealthy; anyone can set up a trust to meet their particular needs. A trustee is a fiduciary bound ethically to manage a trust’s assets in the beneficiary’s best interest. A trustee is responsible for investing the assets, monitoring performance, and paying all expenses. Trustees are also charged with distributing the trust’s assets to beneficiaries in accordance with the terms of the trust. Trustees can be removed from a trust by the beneficiaries or by law in certain circumstances.
Benefits of Trusts
A trust can be a useful tool to help accomplish specific legacy planning goals. It can help avoid probate, an expensive process that can take months or even a year to complete. Creating a trust can also be helpful in protecting privacy by keeping the details of your estate out of public view. It can also be used to reduce federal and state wealth transfer taxes, which are often a significant part of the cost of settling an estate.
A revocable trust can be changed as your needs and circumstances change, which can provide flexibility in meeting future requirements. For example, you can add a beneficiary to the trust to ensure that any children or grandchildren born after your death receive an inheritance. You can also include provisions in the trust that stipulate that heirs must contribute a certain percentage of their income to charitable causes.
In addition, a trust can protect assets from creditors and preserve family harmony by providing for a spouse or children from a previous relationship. It can also be used to provide for an incapacitated individual and avoid the expense of a guardianship, which must be obtained in court.
Types of Trust
There are many types of trust available, and each offers unique benefits to fit your estate plan goals. Some of the most common types include revocable and irrevocable. Special trusts are also used for specific kinds of assets or beneficiaries. An estate planning attorney can help you weigh your options and select the best trust for your needs.
Revocable living trusts are a popular choice because they are easy to set up and offer flexible asset protection. A trustee is chosen to manage the assets and disperse them according to the grantor’s instructions. The trustee must act as a fiduciary and be someone the grantor can trust to carry out their wishes responsibly. Typically, the trustee will be a family member or trusted friend, but the grantor may also choose an attorney, accountant, or financial professional to serve in this capacity.
A trust can be a great option for people who want to avoid the probate process, which can be time-consuming and expensive. Property placed into a trust is not subject to probate and can be handled quickly and privately. Trusts can also be used to avoid estate taxes and provide special needs planning for disabled children.
Other types of trusts include blind trusts, which are established to conceal the identity of their beneficiaries and limit the grantor’s involvement in their management. These are frequently employed by politicians or public officials who wish to avoid the appearance of a conflict of interest. Credit shelter trusts, sometimes called bypass trusts, allow married couples to cut inheritance taxes by transferring their estates to each other.