A trust is a useful tool, even if you’re not a wealthy person. There are many different types of trusts, but the most basic types are revocable and irrevocable. A recent article from Business Insider “A trust fund gives you control over your money after you’re gone, and it’s not just for the super rich” clarifies when and how to use a trust.
Trusts are often used to avoid having assets pass through the probate process. They allow for a tax-efficient means of transferring wealth, avoiding or deferring estate taxes and helping with charitable giving. An experienced estate planning attorney can help clarify what type of trust is needed, and how it can work with an overall estate plan.
Trusts have gained a bad reputation for creating badly-behaved young adults, but they are a good planning tool for anyone. Some trusts are more expensive to maintain than others, which is why they are often associated with wealthy people. However, they have the same purpose: to ensure that a person’s money goes where they want it to go. The directions can be as specific as you wish.
There are at least three people involved in any trust. The grantor creates creates the trust and puts their assets in the trust. The beneficiary or beneficiaries receive those assets according to the terms of the trust. The trustee is the person or the organization that is responsible for managing the trust both while the grantor is living and after he or she dies. A grantor can put almost any kind of asset into a trust, but most people use them for real estate, bank accounts, investment accounts, business interests and life insurance policies.
If a trust is revocable, it means the grantor may make changes at any time and can generate income through the assets in the trust. The assets are included in the grantor’s estate and the grantor may pay taxes on the assets now and upon their death. Creditors can access the assets for any unpaid debts. Once the grantor of a revocable trust dies, the trust becomes irrevocable.
An irrevocable trust cannot be changed once it is created. The assets are not included in the grantor’s estate and depending on how the trust is drafted, the grantor does not have to pay taxes during his or her lifetime. The taxes are the responsibility of the trust and beneficiaries. Depending on how the trust is designed, creditors may not access the trust.
If you are considering setting up a trust, meet with an estate planning lawyer to discuss your unique situation and determine which type of trust works best for you and your family.
Reference: Business Insider (December 2, 2019) “A trust fund gives you control over your money after you’re gone, and it’s not just for the super rich”