Trust & Estate Planning
What is a Trust & Why Do You Need One?
When someone hears the word “Trust: there are usually certain images that come to mind. Things like wealthy trust fund babies or elderly individuals with high net worth’s. The truth is, more people benefit from having a trust than you think.
If you’re looking for the best, most comprehensive way to protect your family after you’re gone (and you’re a homeowner with at least 160,000 of assets) a Trust will likely be the ideal Estate Plan option for you. Creating your will is another protective measure you can take to safeguard your assets and loved ones if you’re not quite ready or don’t yet qualify for a Trust. Don’t worry you can always add a Trust to your estate plan as your life evolves.
In short, a Trust is an agreement that’s part of an Estate Plan. Traditionally, Trusts are used to hold assets for one or more beneficiaries, and they may offer significant estate tax and other protective benefits. If you’re considering setting up a Trust or any other type of Estate Plan Tompkins Selph & Associates can help guide you to create an Estate Plan aligned with your values.
What is a Trust?
A Trust is a legal arrangement that allows you to set up your assets to be held and managed by a third party. This party is known as a Trustee, and the person or firm you appoint to this role will be responsible for ensuring that your estate is handled in the manner you’ve outlined.
Despite what people think, Trusts can be beneficial for all sized estates, not just very large ones. There is a common misconception an Estate Planning Trust is only suitable for the very wealthy. But there are many benefits to a Trust, including…
- Avoiding probate court so Beneficiaries can receive assets sooner
- Reduced or eliminated estate and gift taxes
- The ability to better control future wealth by establishing conditions for asset distribution.
There are multiple types of Trusts, and it’s important to really assess your needs and goals before you decide on which type you’ll create. We Will discuss the types of Trusts below.
Who Should Have a Trust?
Trusts aren’t the best solution for everyone. There are several reasons a Trust might make sense, but that doesn’t mean absolutely everyone needs one. A Trust may be beneficial to those in specific situations such as…
- You own a home or other property, particularly if its out of state
- You have 200k+ in assets
- You wish to keep your assets private
- You are hoping to simplify the probate process for your loved ones after you pass.
- You have a taxable estate, keep in mind the qualifying value that deems an estate `taxable’ differs from state to state.
- You want to set up stipulations on inheritance, for example awarding a dollar amount for certain life events such as graduating college, getting married etc.
Types of Trusts
As noted, there are several types of Trusts, each with its own nuances and purpose. Before establishing a Trust, be sure to have a clear idea of your goals so you can use the type of Trust best suited to accomplish them.
A living Trust is created during your lifetime and it designates a trustee who will manage assets for your beneficiaries after your passing.
Revocable Living Trust
A Revocable Living Trust is created during your lifetime and can be altered or revoked while you’re alive. It is used to avoid probate, but while you’re alive, it’s not an ironclad technique for asset protection. Any assets in your Revocable Living Trust will still be available to creditors during your lifetime, although it will be more difficult for them to gain access.
An Irrevocable Trust means you cannot change or alter anything in the Trust once it is established. You have legally removed any rights to ownership to anything you put in the Trust. In some cases, an irrevocable Trust may be used as a way to protect assets from creditors or bypass estate tax, as you will have effectively removed yourself as the owner for any of the assets inside the Trust. Irrevocable Trusts can be beneficial to those in professions that are vulnerable to lawsuits, such as attorneys and doctors.
A Joint Trust is a Trust established for two people, like husband and wife. While both parties are alive, they maintain total control over any and all assets that are in the Trust. They can change the Trust any time, and after one partner passes, the surviving partner becomes Trustee.
A Testamentary Trust is a Trust that’s created within a Will, and it only goes into effect upon your passing. Also known as a “Trust Under Will” the Last Will instructs how the actual Trust should be established. Because the Trust isn’t truly created until after you pass, it’s not considered a Living Trust. It’s important to note that this option results in the Will going through probate. And there’s also diminished privacy protection compared to other Trusts.
What to Add to a Trust
There are certain assets that are appropriate to fund your Trust. To accomplish this part of the process you will retitle assets with the Trust as the owner. The types of assets a Trust can hold include:
- Homes or other real estate
- Tangible property like jewelry, antiques, collectibles, vehicles etc.
- Retirement accounts
- Brokerage Accounts
- Cash Accounts
- Large Assets
- Business Interests
- Stocks or Bonds that are held in certificate form
- Non qualified annuities
How to Name a Trust
Choosing a name for your Trust is the easy yet important part. Most people name a Trust something logical and representative of their family. This makes sense, as it is easy to remember, so when you’re renaming all the assets the Trust will hold, it’s a logical process. Your family name, along with the words “Family Trust” at the end, is a simple formula that’s commonly used. This format or something similar leaves little to no room for misinterpretation.
What is a Trust Fund?
A Trust Fund is an effective tool that’s often used in Estate Planning where a Grantor (you) sets up a plan that will ensure financial stability and security for a beneficiary, often a child or a grandchild. A Trust Fund can hold investments, cash, real estate or other assets to be distributed in the future.
What is a Trustee?
A Trustee is the person you name to be responsible for your assets. In essence, the Trustee is the legal owner of everything in the Trusat. He or she is charged with administering assets or property for the benefit of your named beneficiaries, as defined in the Trust. The Trustee is also responsible for handling the Trusts tax filings.
Can a Trustee Be Removed From a Trust?
A trustee can be removed from a Trust under certain conditions. For example, they have not lived up to the responsibilities outlined in the Trust. They may no longer wish to or be able to perform the duties specific to the Trust. All Beneficiaries must agree they want to change who is appointed.
Can a Trustee Use Money From the Trust?
Trustees can only use the money or assets in the Trust to provide for beneficiaries or to accomplish other Trust related responsibilities. A Trustee cannot use Trust money for personal use or benefit.
Setting Up My Trust?
Setting up your Trust is beneficial on so many levels. It’s one of the several layers of your Estate Plan, and it’s yet another safeguard against things happening against your wishes once you no longer have a say. Providing security, passing on your hard earned personal wealth and assets, and setting up a tax beneficial estate is one of the best gifts you can leave your heirs. Knowing and trusting that they will be taken care of, even when you’re not there to do it is priceless. Contact Us Today at Tompkins Selph & Associates (614)-453-0971.
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