Trusts are versatile instruments that can serve various needs and aren’t as complicated as you might think. You might think that trusts are only for the wealthy or those with complex assets, but that’s a misconception.
A trust is a legal entity, not just a stack of documents. Once assets are transferred into the trust, they are controlled by a trustee and distributed to beneficiaries based on the rules you set up.
Types of trusts and how to choose the right one
There are different types of trusts tailored to specific needs and scenarios. The most commonly used are revocable and irrevocable trusts. A revocable trust, often called a living trust, allows you to maintain control over the assets and make changes during your lifetime.
By contrast, once funded, an irrevocable trust can’t be altered without the beneficiaries’ consent. It provides benefits like asset protection and potential tax advantages but lacks the flexibility of its revocable counterpart. Another consideration is protection from creditors, which is provided by irrevocable trusts but not by revocable instruments.
The role of the trustee
The trustee is responsible for managing the assets and ensuring they’re distributed according to the rules you’ve set up. It’s crucial to choose someone reliable, organized and financially savvy. Many opt for professional trustees like financial institutions to manage more complex trusts.
The mechanics of setting up a trust
Setting up a trust involves drafting a legal document that outlines the rules for asset management and distribution. This document specifies the trustee, beneficiaries and other operational details. After creating the document, you’ll need to transfer assets into the trust for it to become operational. These assets may include real estate, bank accounts and investment portfolios.
Ultimately, a trust can be a valuable component in an estate plan. Working with someone familiar with your wishes and your estate can help you learn more about suitable options. Remember, this is only one part of your estate plan so don’t neglect other necessary components as you’re moving forward.