What is a trust and why would I need one?
Let’s look at a question our estate planning and probate law offices get all the time. We want to answer the question; “What is a trust?”
A trust is essentially a document or a contract. And, it has three main components.
First component is: the grantor. That’s the person who set up the trust. Second component is: the trustee. This is the person who manages the trust. And third is the beneficiary. That’s the person for whom trust assets should be used.
So, these are the basics. Just three main components to a trust.
What’s the purpose of a trust?
The main purpose of a trust is essentially, to move assets from one person to another.
You may be wondering: “Why on earth would I want a trust?”
There are plenty of reasons to set up a trust. The reason you may consider setting up a trust will depend on your family situation, your financial situation, and your own personal goals. There are a million reasons to set up a trust.
Taxes, Privacy, and Control. The reasons people set up trusts.
One of those reasons include control. You may want to have a say on when and how assets pass to your heirs or your children. You may want to put in provisions that say when and how money should be spent out of your trust. You may want to include provisions that protect assets from things like creditors, bankruptcy, divorce. A trust allows the grantor to specify when and how assets should be passed to their heirs or beneficiaries, as well as when and how money should be spent. This control can help ensure that your wishes are fulfilled.
Another reason that you may want to set up a trust is for privacy. Oftentimes, assets that don’t go into a trust are subject to what’s called probate, which is a court proceeding. Probate is public record. Everything in that public record is open and available to anyone who wants to go searching for it. Many people implement trust planning to ensure their family’s privacy, particularly around finances.
The third reason you may want to set up a trust is tax avoidance. Uncle Sam has a lot of ways to get into your pocket, including capital gain taxes, estate taxes, inheritance taxes, and of course income taxes. A trust may eliminate or reduce your tax exposure.
So now that you know that you need to trust, and now that you’ve got the answer to ‘What is a trust?’ think about what’s important to you. How do you want your estate plan to play out for your family? Have a conversation with your financial advisor or your attorney or other trusted advisors who are familiar with your finances.
Finally, and probably the most important piece we want to mention relates to funding your trust. You can have a great plan and it won’t work the way that you want it to. If your assets aren’t properly plugged in to your plan. This is really important and your trusted attorney will be able to help with that piece and maintain it over time. We know this can be stressful. But there are plenty of reasons to set up a trust and plenty of reasons why it can benefit your family. If you need a trusted attorney to help you set up your trust, give us a call.