By: Terry Parsons | Category: Financial Services | Issue: February 2014
Terry Parsons, RCB Bank Trust Officer.
There’s a long-held perception that Trusts are strictly for the wealthy and sophisticated. And, the names of some Trusts (Domestic Self-Settled Spendthrift Trusts, Qualified Terminable Interest Property Trusts, Intentionally Defective Irrevocable Trusts, etc.) can make most of us want to cringe and run for cover.
Largely due to misunderstanding and misperception, the subject has become so intimidating that many people avoid it. And that’s a shame, because Trusts really can be pretty simple and very effective.
Let’s go over the basics:
What is a Trust? A Trust is simply a legal arrangement that holds assets for the benefit of another. There are three parties to a Trust arrangement:
The grantor: the person(s) who creates and funds the Trust.
The beneficiary: the person(s) who receives the benefits from the Trust (such as the income or the right to use the home, etc.).
The trustee: The person(s) or entity who controls the Trust property, administers the Trust and has an absolute fiduciary duty to act in the best interests of the beneficiary.
Why should you consider a Trust? For starters, a Trust can potentially…
•minimize estate taxes,
•shield assets from potential creditors,
•avoid the expense and delays of probate,
•preserve, protect and grow assets for your (minor) children until they are grown,
•create a pool of investments that can be managed by professional money managers,
•set up a fund for you should you become sick or disabled,
•shift part of your tax burden to people in lower tax brackets,
•provide benefits for charity.
What’s the other side of the coin? Here are a couple of things to consider:
•There can be costs associated with setting up and maintaining a Trust (legal fees, trustee fees, etc.).
•Depending on the type of Trust you choose, you may give up some control over the assets in the Trust. (This can be the case with many Irrevocable Trusts.)
It sounds like a Trust pretty much covers everything, so is there even a need for a will? Personally, I recommend it, if for no other reason than most people neglect to transfer some or all of their property into their Trust. A properly constructed will, if nothing else, can pour over into the Trust at the time of your death any forgotten assets or assets you obtained after the Trust was created.
What to do next?
Get with a professional! This isn’t a job for amateurs. Every situation is different. Tax laws – which can affect different types of Trusts in interesting ways – change on a regular basis. You want to make sure your advisors are totally up-to-speed on the regulations and that your situation is customized specifically to your needs.
For more information, contact
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