What Is a Trust and Why Do I Need One?
Effective trust planning is an important part of carrying out your final wishes when it comes to your assets and estates, but it also provides many other benefits. A trust is essentially a fiduciary or financial arrangement that allows the trustor to give a third party (the trustee) the ability to hold onto assets on the behalf of and for the benefit for the beneficiary, who will eventually receive the assets. Simply put, a trust is a financial agreement between three different parties to hold onto assets for the receiver or beneficiary. While this may sound similar to a will, there are distinct advantages to utilizing a trust.
Trusts tend to bypass the entire probate process, allowing beneficiaries to have quicker access to your assets. Irrevocable trusts are not often seen as part of your taxable estate, which means there could potentially be fewer taxes to be paid when you pass on. This means valuable time, fees, and taxes can be saved.
There are also other reasons to consider using a trust. Wills are subject to probate, which are in the public record; using a trust grants a higher degree of privacy and can reduce court fees. A trust allows setting forth more stipulations when drawn up properly with the assistance of a trust attorney (such as protecting your estate from certain beneficiaries or creditors who are not financially accountable for a certain period of time).
Different types of trusts
The main kinds of trusts are:
- Living trust: This trust lets the trustor (or grantor) have access to his assets while alive, but then passes on the assets to the beneficiaries upon passing.
- Testamentary trust: Also called a will trust, this is put in place and managed by an executor who manages the trust for the decedents once the will and testament has been drafted. This type of trust cannot be altered.
- Revocable trust: This type of trust can be changed and altered by the trustor as long as they’re alive, and is used for transferring assets out of probate. This type of trust is still generally subject to estate taxes.
- Irrevocable trust: With this trust, the trustor cannot alter or revoke it or have it revoked after passing. You essentially lose all rights once it’s established. Since the assets can’t be sent back to the trustor, these trusts have fewer (if any) estate taxes, making them the most popular option.
- Unfunded vs. funded trust: Funded trusts have assets put into it during the trustor’s lifetime, while unfunded trusts are made up only of the trust agreement and have no funding. That said, upon passing, an unfunded trust can become funded.
There are many other types of trust funds which can be utilized, as trusts are highly versatile vehicles providing you, as the trustor, an incredible amount of options to protect your assets and ensure they end up in the right hands, at the right time, long after your passing. Other trusts include insurance trusts, charitable trusts, and blind trusts, all having their own unique features, benefits, and disadvantages.
Since state laws vary significantly, it’s important to consult your local trust attorney in Melbourne, FL, before you make any decisions about your trust. Don’t hesitate to contact us for our expert trust planning services.
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