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Wealth is not a requirement for trust funds

On Behalf of | Mar 25, 2021 | Firm News |

The advantages of trusts are not restricted to the rich. Trust funds may be an effective estate planning device for anyone who wants to assure that their assets are properly passed on to their family, friends, or a charity.

Trust fund defined

A trust fund is a legal mechanism that holds assets until an intended beneficiary can receive them. Generally, assets are distributed when the recipient reaches a certain age or after the trust owner dies.

Trusts typically contain assets such as real estate, heirlooms, jewelry, stocks and bonds and businesses. Retirement accounts should not be placed in a trust because these usually have a named beneficiary who automatically receives that asset and probate is not required. Placing vehicles into a trust may also pose complications.

The trust’s creator, the grantor, can transfer assets into the trust when they are alive. Or their estate plan can create the trust to pass on their asserts after the grantor’s death.

A revocable trust allows the grantor to amend or revoke the trust during their life. Irrevocable trusts are intended to be permanent and are usually difficult to modify.

Reasons

Trusts have several advantages. First, trusts can pass assets on to beneficiaries without the time-consuming probate process.

Trusts protect beneficiaries who are young or lack the ability to manage their finances or a sudden distribution of money or property. A contingent trust fund, for example, can distribute assets only when a beneficiary reaches a certain age.

Trusts also protect assets. A spendthrift trust is one option that ensures a child’s spouse has no claim to assets if they ever divorce.

Trusts may create a line of inheritance. A bypass, credit shelter, family or A/B trust allow the surviving spouse to first receive assets which may then be passed to designated beneficiaries after they die.

Trusts can lower tax liability or avoid possible estate taxes. Assets may be transferred into an irrevocable trust that are no longer held by their grantor. Income taxes are not required during the grantor’s life because they are no longer held by the grantor.

Trusts may help assure that a beneficiary with a disability is provided for even though some social services are restricted to individuals with low net worth and income. A supplemental needs or special needs trust can provide assistance and allow the beneficiary to receive government services, even if they receive an inheritance.

Trusts have financial, tax and other advantages and disadvantages that depend on a person’s situation. An attorney is aware of the governing laws may develop a trust that meets your needs and addresses your situation.