Trust Fund 101
When you hear the words “trust fund” or “trust” most people think of extremely wealthy families and assume it is nothing that they would need to worry about. In reality, a trust can be a powerful financial tool for anyone looking for a cost-effective and protected way to distribute their assets.
When it comes to estate or end-of-life planning a will is often a part of the process – but fewer people consider the use and widely misunderstood relative; a trust.
What is a Trust?
A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries.
Since trusts usually avoid probate, your beneficiaries may gain access to these assets more quickly than they might to assets that are transferred using a will. Additionally, if it is an irrevocable trust, it may not be considered part of the taxable estate, so fewer taxes may be due upon your death.
Assets in a trust may also be able to pass outside of probate, saving time, court fees, and potentially reducing estate taxes as well.
Benefits of a Trust:
Flexible Time Frame - One of the biggest benefits of a trust is that it can work during your lifetime, whereas a will doesn’t mean anything until you’re gone. This means you can name a third party to help take care of things if you start having health issues.
Privacy- A beneficial difference between a will and a trust is privacy. A will is settled in court through probate and is available to the public, while a trust remains private because it avoids the probate process.
Tailored Specifics - Trusts can be more exact and specific than a will, particularly regarding individual assets — which means you have better control over when, how, and to whom they’re distributed
Time & Cost Efficient - In most cases, trusts avoid the lengthy probate process — what’s commonly referred to as “settling the estate.” This can help save your loved one’s money, as the probate process incurs significant costs.
Tax-Exempt - Assets in irrevocable trusts are generally exempt from estate and gift taxes, which means your survivors will have fewer payments to worry about at the time of your death.
Added Protection - Trusts can protect your assets from lawsuits and creditors, and the specificity of their terms can head off inter-familial conflicts
Revocable vs Irrevocable Trusts
People often think of a trust as an alternative to a will — a way of passing on wealth after one’s death. However, you can also create a trust and pass on assets during your lifetime through a revocable trust.
Also called a living trust, a revocable trust allows you to retain control of the assets during your lifetime, yet can be altered and even dissolved so long as you’re alive.
The downside is that while a revocable trust will usually keep your assets out of probate if you were to die, you probably won’t escape estate taxes.
By contrast, an irrevocable trust cannot be altered once it has been created and you give up control of your assets that you put into it.
But an irrevocable trust has a key advantage in that it can protect beneficiaries from probate and estate taxes. Those setting up an irrevocable trust must also consider other issues regarding how it is managed.
Bottom Line
When considering a trust, you should always seek advice from a professional you can (haha) trust. It is crucial you feel comfortable that you are making the right decision for yourself and your loved ones. At RM Nelson Law, we are proud to offer the highest quality trust attorney services that exceed our loyal clients’ expectations. Our experienced trust attorney works diligently to help you specify your last wishes to ensure that your valuable belongings end up in the intended hands. Contact them today to learn more or get started.
