Contrary to popular belief, trusts are not estate planning tools used only by the ultra-wealthy.
Trusts are complex but powerful and versatile estate planning tools that can be used for a wide array of purposes to achieve specific goals. The establishment of a trust provides a legal entity to hold property to keep assets safe and can be used to protect those assets from divorce, a lawsuit, or other misfortune. Trusts can also be used to ensure care for a mentally or physically disabled dependent, tax planning, privacy, or to provide for a beloved pet.
A trust is a legally binding contract that allows a third party, known as the trustee, to hold assets on behalf of another party, known as the beneficiary. A trust is typically created by the owner, or grantor, of the assets to be transferred. Since trusts usually avoid the formalities of a will, beneficiaries may gain access to assets more quickly than they might to assets that are transferred using a will. Assets in a trust may also save time, court fees, and potentially reduce estate taxes as well.
There are many different types of trusts, but most fall under the main categories of living or testamentary, revocable or irrevocable, and funded or unfunded. A living trust is a document where a person’s assets are provided as a trust for that person’s use during their lifetime and can be transferred to their beneficiaries at the time of death. A testamentary trust details how an individual’s assets are designated after death. A revocable trust allows the trustor to alter or cancel the trust during their lifetime. An irrevocable trust cannot be changed by the trustor after it is created or it becomes unchangeable upon death, thereby allowing estate taxes to be minimized or altogether avoided. A funded trust is one that allows a trustor to put funds into it during their lifetime. An unfunded trust contains only the trust agreement without funding. An unfunded trust can become funded upon the trustor’s death or stay unfunded, but this type of trust exposes assets to many of the dangers a trust is designed to avoid so, proper funding is imperative.
Some of the most common trusts include credit shelter, generation-skipping, insurance, charitable, special needs, and blind trusts.
How We Can Help
Baxter Legal Services can help you properly set up a trust to allocate your assets to your beneficiaries, or help you minimize tax liability. Call us today for expert advice on creating the type of trust you need to achieve your financial objectives.