Especially if you have a family and a substantial net worth, setting up a trust is one of the most important things you can do for your loved ones. A trust is something that can help you accomplish your financial goals such as managing assets, controlling the distribution of your estate, minimizing estate tax or protecting your property. A trust can come in many forms, which are all designed for meeting various specific goals. With so many complex aspects of the trust, it is wise to have legal & tax advice from an estate planning attorney.
Basically, a trust is a legal entity that holds assets for the benefit of another. You can put almost anything in a trust, such as stocks, bonds, life insurance policies, real estate, valuable antiques or even cold hard cash. As the grantor, or creator of the trust, you can put whatever you want in it and you can name whomever you please to have access to those assets in the case of your death. The different types of trusts help individuals to meet different goals, such as generating income or providing cash for beneficiaries to pay estate taxes by putting a life insurance policy in a trust. An appointed trustee can manage the assets and distribute them to beneficiaries per your instructions.
It’s important to consider setting up a trust if you have assets that you want to be left in the proper hands after you pass away, because trusts provide many estate planning benefits. They can be quite beneficial during your lifetime too. They can be used to reduce estate taxes, protect assets from potential creditors, circumvent the time and expense of probating your will, preserve assets for minor children until they are grown, create investment pools that can be managed by professional money managers, support you if you are incapacitated, shift part of your income tax burden to beneficiaries in lower tax brackets, provide benefits for charity and protect your assets.
The three main types of trusts – they are the living trust or the revocable trust, the irrevocable trust and the testamentary trust, which all have their own special characteristics.
The living trust or revocable trust is a legal entity that you create while you’re alive to own property such as your house, a boat, a business or bank accounts. Property that passes through a living trust is not subject to probate; hence the properties get transferred to your beneficiary immediately. The living trust is attractive because they are revocable. You maintain control over it, you can change the trust or even dissolve it for as long as you live. Living trusts are also private. Unlike a will, a living trust is not part of the public record. No one can review details of the trust documents unless you allow it.
There are many different kinds of irrevocable trusts. Many have special provisions and are used for special purposes. Some irrevocable trusts like Irrevocable Life Insurance Trust hold life insurance policies, for example.
Finally, testamentary trusts are the trusts will be activate at your death under your will and trust provisions.
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