Many people include trusts in their estate planning documents to accomplish several things. But sometimes, people lack an understanding of what trust is. A trust is a legal document that appoints someone to manage the person’s assets who created the trust. The trust creator needs to sign the document to specify the terms and conditions of the trust.
Types of Trust In Estate Planning
A trust can be of various types. A living trust works when the creator is alive, while a testamentary trust comes into effect after the creator’s death. A trust can also be revocable or irrevocable. A revocable trust can be subject to change or even terminated by the creator at any point in time. But an irrevocable trust cannot be altered or removed so easily. You can find out more about family trust planning from this article.
Purpose Of A Trust
A trust is a flexible and valuable tool for estate planning. Every trust serves the purpose of addressing the goals of the person who creates it. It can help in preventing claims by ex-spouses or creditors. Some trusts can even deal with the inheritance concerns within a family. On the other hand, some trusts help in managing the inheritances of minors.
Trusts are also made to take care of the special needs of a child or adult. It can even help in the wealth management of financially irresponsible beneficiaries. You can even hire Medicaid planning lawyers to protect assets using trusts.
Benefits Of Making Trusts In Estate Planning
A trust is often included in estate planning due to the many benefits it offers.
- A trust enabled the grantor to control the distribution of assets to the beneficiaries. It can help in preventing probate for property and assets.
- Trusts are elements that help in maintaining the privacy of financial information. In the event of the grantor’s death or incapacity, the assets will remain well-protected.
- Additionally, trust can help in meeting the special needs of a family member.
Reasons To Consider Trusts In Estate Planning
As you already read the purpose behind opting for trusts in estate planning, let’s further dig into the reasons why you must consider it.
1. Assets Protection:
The trustees get bestowed with the legal ownership of a trust asset, not the beneficiaries. Once the trust is created, the settlor, who is the trust’s founder, and his beneficiaries will have no further control over the assets.
Suppose the wealth declaration is crucial in your country of residence due to applicable exchange control laws and unstable political situations. In that case, asset protection through trusts will be highly beneficial and essential.
2. Avoiding Probate:
The title of the assets passes from the settlor to the trustee after the settlement process. As there’s no subsequent change of ownership after the settlor’s death, there’s no need for probate of a will in terms of trust assets. Probate granting is nothing but a public record, whereas a trust refers to a private agreement that needs no registration anywhere.
3. Family Wealth Preservation:
Trusts can be a source to own certain assets like the land that may not be the right choice for the settler to divide among individuals. The trusts help such people to enjoy those assets even if they don’t actually own them.
The trusts help to maintain the capital value of those assets for the next generation. Trusts can be tax-exempt if the settlor and the beneficiaries are not residents of the jurisdiction where their asset is.
4. Tax Mitigation:
If you want to reduce your taxation on income and capital, then trusts can be the most effective solution. The trusts help to avoid punitive taxation for the settlor, the beneficiaries, and the assets. Several people consider trusts as it helps in the mitigation or ignorance of inheritance tax. It happens in the settlor’s jurisdiction and needs proper tax advice.
5. Confidentiality and Flexibility:
Considering trusts benefits with the flexibility in the organization and subsequently distributes the assets of the deceased settlor.
- A discretionary trust enables the settlor to guide the trustee about the way in which the trust assets are to be managed and consolidated during his lifetime and how to be distributed after his death.
- These arrangements usually happen in secret between the settlor and the trustee and set out on a drafted letter of wishes. The trustees use it for future reference.
- This confidentiality between the settlor and trustee will keep the arrangements secret from the beneficiaries. A trust also ensures to hold the property of those who cannot do that on their own, such as minors.
You should discuss your financial situation with a family trust lawyer to determine which trust is the best for you. The experience of estate planning lawyers will come in handy in deciding if the trusts will be able to fulfill your long-term goals. It is one of the best estate planning elements that can help determine if trust is an appropriate approach for you.