A trust is a type of estate planning document that allows you to designate who will receive the assets you leave behind. Trusts can also be used to make sure that your resources are managed in accordance with your wishes, especially if you become incapacitated. These documents can also protect your bequests from creditors and preserve generation-skipping tax exemptions. Here are some of the main reasons to use a trust:
First, trusts are legally binding agreements. The creator of a trust transfers property to a trustee, who manages the property on behalf of the beneficiary. These assets may be stocks, bonds, real estate, or even bank accounts. If you have multiple beneficiaries, it is likely you will name a trustee to oversee these assets. If you have more than one beneficiary, this arrangement may be an ideal choice. By naming a trustee, you’ll ensure that each beneficiary receives the benefits they’re entitled to.
In addition to reducing taxes, a trust may reduce estate tax liability. Some states have tax laws that allow charitable trusts, which can reduce estate taxes. A trust may also alleviate family member concerns about who will inherit a family lake cabin. Further, it can be helpful to name an independent trustee to handle the assets in case you die. This person will make investment recommendations based on your goals, the needs of your beneficiaries, and your time horizon. Even a modest income earner can be subject to estate tax if they die without a trust.
Setting up a trust is not difficult, and you don’t need to be a millionaire to benefit from one. A few hundred dollars can easily be spent to designate a trust. If you’re not that rich, consider hiring an attorney. A good attorney can help you set up a trust for a relatively small fee, and the legal fees will depend on the complexity of your situation. Don’t limit yourself to thinking about whether you’d benefit from a trust, because they aren’t limited to millionaires.
While the primary goal of setting up a trust is to protect your assets today, they have important tax benefits in the future. A trust is a good investment choice for protecting your assets while leaving them in the hands of beneficiaries. There are several types of trusts, but all have a few common elements. Generally, trusts name beneficiaries (people or charitable organizations). The trust documents state the conditions under which they will be distributed. In some cases, the trustee has discretion to determine when and how much to distribute, while others do not.
The benefits of using a trust over a will include many tax benefits and privacy. A trust allows you to bypass probate, which can be expensive and time-consuming. Additionally, a trust allows you to transfer assets out of your estate. A trust can also reduce estate and gift taxes and limit the ability of creditors to access the assets left behind. Another important advantage to using a trust is that you can limit the extent to which your beneficiaries can spend the money they’ve received.