Trusts are a valuable estate planning tool for many individuals and families. Often, they are used to avoid probate, protect assets from creditor claims and to preserve privacy. However, they also can be beneficial for people who are living with a disability or illness, as well as to ensure their family business continues after their death.
A trust is a legal entity created by a person (called the grantor) who transfers ownership of an asset into it, such as real property through a deed or bank account. A trustee is then appointed to manage the assets in accordance with the terms of the trust. The trustee must follow the law and the grantor’s wishes. Trusts can be revocable or irrevocable, depending on the goals of the grantor and their personal situation.
The most common types of trusts include revocable and irrevocable trusts, as well as special needs, life insurance and business trusts. Each type has different benefits. The first step in creating a trust is to talk with someone who has experience in this area and understands your personal situation, including your concerns. An estate planning attorney who specializes in trusts can help you choose the right trust for your circumstances and goals. They can coordinate with your tax and financial advisors to ensure that your trust document is comprehensive and properly documented.
Another important consideration is selecting the trustee. Although it may be tempting to select a friend or relative, choosing an independent fiduciary who is not a beneficiary of the trust can provide greater peace of mind and ensure that there are no conflicts of interest. In addition to managing the trust assets, the trustee must file taxes and manage the investment portfolio, as well as provide reports to beneficiaries. While it is possible to appoint an individual or corporation as trustee, professional trustees offer expertise and the added benefit of being independent of the beneficiaries of the trust.
It is also critical to create a comprehensive plan and review it periodically to make sure that it aligns with your goals. You should also make sure that you keep a copy of the trust document and investment statements for your files. Finally, it is wise to consult with your tax and legal advisors as the trustee of a trust must submit detailed financial and tax returns and may be liable for fiduciary misconduct.
Trusts can be complex, but they are an effective way to accomplish important estate planning goals for many individuals and families. They can be especially useful for those of average wealth, as they can bypass the time-consuming process of settling an estate and may save costs in certain cases. For example, a revocable trust can allow a married couple to pass their combined assets to children without being liable for the estate settlement costs twice as they would be if they left everything to each other directly. In addition, a revocable trust can be modified during the grantor’s lifetime to address changing circumstances.