It’s a myth that trust funds are only valuable to the ridiculously wealthy! A trust is an estate-planning document that serves as a valuable tool for anyone with assets. You can place cash, real estate, stock or other valuable assets into a trust. Trusts help to manage your property and assets and ensure that they are distributed according to your wishes after your death.
A trust is a legal agreement that has three parties: the grantor, the beneficiary and the trustee. The grantor is the person transferring their assets into a trust. The beneficiary is the recipient of the assets. The trustee is the individual or institution overseeing the assets.
The most common type of trust is a living trust. Living trusts are set up during the grantor’s lifetime. Trusts can be deemed revocable or irrevocable. Revocable trusts may be amended, altered or revoked by the grantor at any time. In contrast, an irrevocable trust is one in which the terms of the trust cannot be amended or revised until the terms or purposes of the trust have been completed.
Now that you know what a trust is, here’s how to go about setting one up. First, select an attorney who specializes in estate planning. You can contact your state bar association or do research online on websites such as Lawyer.com to find a reputable estate planning attorney in your area. Although a trust can be established at a low cost, the associated attorney fees can become costly depending on how much work is required to establish it.
Once you select a lawyer, you should meet with him or her to select your beneficiaries and establish the stipulations of your trust. For example, perhaps you decide that your assets can only be used for educational expenses or that the beneficiary will receive monthly payments from your trust.
One good aspect of a trust is that you don’t have to pay taxes on the money earmarked for your beneficiary. Trusts can also be created as a way to contribute to a charity and retain certain benefits for oneself or another family member. Trust assets also are safely untouchable from bankruptcy and divorce. Trusts can be exempt from estate and gift taxes – which is another major plus.
Alternatives to trusts include wills, custodial accounts or 529 plans. All of these provide secure methods to distribute or gift assets and designate an administrator for those assets. But they each work differently in terms of how they transfer assets to beneficiaries and how they’re managed. You have to pick the one that best fits your wishes in passing on your assets.
To learn more about how to set up a trust, visit USA.gov. Or, leave a message below if you have a question.