Creating a well-crafted estate plan often involves establishing a trust. A trust is a fiduciary relationship where you give a third party, the trustee, the authority to hold and manage your assets on behalf of the trust’s beneficiaries. Trusts are versatile and can be used in many ways. They can reduce estate taxes or help you control your finances, for example. Here are 6 things you should know about adding trusts to your estate plan.
1. Choose the Right Trust to Fit Your Goals
There are many different types of trusts, and each one aims at a different goal. While planning your estate, it is vital to first outline what you want to accomplish. This will determine what type of trust best suits your needs.
For example:
If you want to reduce your estate taxes and take a more hands-off approach to manage your assets, then consider an irrevocable trust.
Do you want to retain ownership of your assets while gaining greater control over your assets at the cost of tax benefits? Then, a revocable trust may be right for you.
A charitable trust may offer you a mix of both, and allow you to contribute to a charity of your choosing.
2. Appointing a Trustee
Every trust has a trustee. Appointing the appropriate trustee to manage the trust on your behalf is essential. Many times, parents choose children for these positions.
“Most people appoint the oldest child to these positions, even if the spouse is still alive. Keep in mind that this puts the child in charge of everything.”
Bob Carlson, Retirement Watch
This often leads to complications within family dynamics and can create issues. Picking the right trustee depends on your family and knowing who would be the best fit. It is important to choose a trustee that is responsible to carry out your wishes. In the event that the original trustee is incapable of fulfilling their duties, you should always include a clause that allows the family to change the trustee.
3. Deciding When Your Beneficiaries Receive Distributions
Deciding when your beneficiaries receive your assets is an important part of having a trust. The last thing you want is for your heir to take your assets and blow them all at once. That is why you should always set control limitations on your trust. This ensures that its beneficiaries receive your assets at the right time. As the grantor of the trust, you can designate your assets to be installed in segments as your heirs grow older. You can even use an incentive trust which will restrict your heirs from receiving money until they accomplish something, whether that be an academic degree, reaching a certain level of income, or any other goal you establish.
4. Should You Give?
If you have enough wealth to be certain that your needs are taken care of, you can consider transferring a portion to your loved ones early. A trust can offer an easy way for making donations or gifts that are not directly subject to gift taxes. This can be a great way to start distributing your wealth while you are still alive. However, you should remember that as the grantor of the trust, you may have to file a gift tax return with the IRS.
5. Funding Your Trust
Creating your trust is just one step in the estate planning process. Once you pick and create a trust you need to retitle your assets in the name of the trust. Determining which assets you wish to fund your trust with is an important aspect of your estate plans. The most common assets within a trust include real estate, savings accounts, investments, life insurance, business interests, and stocks and bonds.
6. Appoint a Trust Attorney
Consulting with a trust attorney to set up the trust on your behalf is an extremely important aspect of estate planning. Any competent estate plan has an estate-planning attorney who will take the time to regularly review and discuss your plan with you. Setting up your trust can be complicated, which is why it is important to consult with a professional. A trust attorney can be costly, but down the line, it will save you time and headache. If your estate is especially large or complex, then a trust attorney is absolutely a necessity.
Ready To Set Up a Trust?
If you’re ready to begin the estate planning process, or talk to a professional, start here: Elder Law Resources Near Me
