Trusts may seem geared primarily toward high-net-worth individuals and families, but they can also be helpful for those with more modest means. They provide a number of planning benefits that are not available with a will, including minimizing fees and helping to ensure that the terms of a will are carried out in a timely fashion. They can also be used to avoid costly legal expenses, and to help protect privacy.
The basic idea behind a trust is that you transfer ownership of some or all of your assets into the name of the trust. The trustee holds the assets in trust for the benefit of others, according to the terms established by you. The trustee is typically a family member or someone you trust, but it can be a bank or a private trustee company. The trustee must adhere to the fiduciary standard of care, which is a legal obligation to act solely in the interest of the beneficiaries of the trust. If the trustee fails to live up to this duty, they could be held personally liable for damages incurred by beneficiaries of the trust.
Many people establish trusts to protect their assets from creditors and others who might have a claim on their property after death. Trusts can be used to hold personal property such as art, coins and stamps, real estate, and even life insurance policies. Trusts can be set up to allow heirs access to certain assets at specific times or under specified conditions, and to limit how much they can withdraw at any given time. They can also be structured to provide tax advantages, such as generation-skipping trusts that allow heirs to receive assets tax free.
Another important advantage of a trust is that it can be settled quickly and privately, unlike a will that goes through probate court, where the proceedings are public. This can prevent your heirs from being exposed to undue scrutiny and solicitation from interested parties, which could be especially important for those with children or other family members living with mental health issues or addiction problems.
One final point to consider is that it’s a good idea to have accurate written records of any assets you transfer into or out of the trust. While living trusts don’t require separate income tax records, you must keep track of the amounts that come in and out of the Trust to be sure you don’t exceed your allowable deduction limits.
If you’re thinking about using a trust in your own estate plan, it’s a good idea to talk with a financial professional who has experience in this area. He or she can explain the different types of trusts and help you choose the right one to meet your goals. He or she can also work with your other estate planning professionals, such as attorneys and CPAs, to make sure that your plans are executed properly.