Having an estate plan and setting up a trust is one of the best things you can do for your loved ones. You might think that it’s not really necessary, but not settling your affairs can have a lasting – maybe even costly – impact on your loved ones.
What is a Trust?
A trust is a legal agreement or a fiduciary agreement between you, the trustor, and a trustee. A trust is a legal document that allows a trustor to arrange how and when their assets will be given to their beneficiaries, and to transfer assets they own to a trustee who will then manage the assets put into the trust.
There are two main types of trusts: revocable and irrevocable trusts. In revocable living trusts, the settlor, or trust maker is allowed to retain sole control of the trust while they are still alive and well. A settlor can’t receive any tax benefits from a revocable trust, but they can withdraw funds, alter, or cancel the trust agreement at will. They also serve as the initial trustee, and they have the ability to transfer or remove the title of a property from a trust. On the other hand, the trustee is given full control over the trust property in an irrevocable trust, and the agreement can’t be terminated unless the trust purpose is fulfilled. It cannot be changed, modified, or revoked after its creation. Once a property is transferred to an irrevocable trust, no one, the trust maker included, can remove the property out of the trust. The trust can only be revoked or altered through a legal proceeding with the consent of the trustee and the beneficiaries.
What is a Trustee?
In a trust, the trustee is the one who acts as the custodian of the trust until its assets can be distributed according to the terms of the trust. It can be an individual, a bank, or a corporate trustee; they will have the ownership or legal title to the assets and property in the trust on behalf of the trustor. Trustees also have a fiduciary duty to the beneficiary of a trust to protect the trust property, to invest wisely, and to make proper distributions and administration of the assets. Failure to fulfill this duty or a breach in the contract can have serious consequences for the trustee.
Why Do You Need a Trust?
It is a common misconception that only the extremely wealthy need to get a trust. The opposite is true, for everyone can benefit from having a trust. A properly planned trust can give you better control over how you want to distribute your assets to your heirs.
A trust also allows you to avoid the probate process from a court, giving your loved ones and family members privacy. A probate proceeding is public, and it puts your will into public record. By opting to set up a trust, avoiding probate is possible; giving you privacy for when and how you transfer your assets to your beneficiaries.
A trust may take a different number of forms; it is not just about transferring assets after death. It can also be used to provide support to a family member, but usually, it is a combination of both. Trusts are commonly used to set up a trust for the benefit of the decedent’s surviving spouse. However, once your spouse also passes away, the trust will be dissolved and the assets will be distributed to other beneficiaries, like your children and grandchildren. Another option you have is to split the property and assets between your children and your wife promptly after your passing.
Creating a trust can also be the optimal estate planning tool if you want to delay the distribution of your estates, or if you require certain conditions to be met before your assets can be transferred to your heirs. Different from a will where your assets are transferred directly to your beneficiaries, a trust will allow you more control over your estate administration. You can establish a trust arrangement where the inheritance can be given in terms, either in a monthly or yearly disbursement, or you can also specify certain conditions before any beneficiary of the trust can claim an inheritance. Provided that you have a trustee that is adept in trust administration, these type of arrangements can provide adequate financial security to your beneficiaries without compromising their comfort.
A trust is also an excellent tool to provide for someone with specials needs, whether it is for your child or anyone else that you care about. A Special Needs Trust prevents a beneficiary with special needs from being disqualified from receiving government benefits and assistance.
Consult with an experienced estate planning lawyer today to help you make the right decision.
Naming Your Beneficiaries
Generally, it is recommended that you avoid naming a trust or your estate as your beneficiary for your retirement fund unless the trust was particularly written for that purpose. More tax benefits are given to people when they are named as retirement beneficiaries than entities.
The most common trust beneficiary is the surviving spouse. Children are a good option; because of their young age, the benefits can be stretched out for a longer time. Charities can also be a good option because payouts to charities from IRAs aren’t subject to tax deductions.
As for your life insurance policy, you can name anyone you please as your beneficiary; it could be your spouse, your children, other relatives, or even charities and friends. You could also name your estate as the beneficiary, however, it might go through probate and be obtained by creditors if you have unpaid debts
Creating a trust is a great way to protect your family’s assets and to make sure that your loved ones are secured. If you want to learn more about creating an estate plan and setting up a trust, our estate planning attorneys are here to help. Contact us today for a free consultation.
Here at Wᴀʟᴅʀᴏɴ Lᴀᴡ Gʀᴏᴜᴘ, we value our integrity and want only what’s best for you. Call us at 801-678-3441 and let’s start planning for your family’s future today.