Setting Up a Trust
As kids, many of us may have imagined one day having our own money bin full of money like Scrooge from A Christmas Carol. We want it protected from the outside world and free to dive into. As adults, we’ve realized this would be an unsafe to have a big pile of cash laying around. It’s not a good way to protect and store the wealth we’ve earned. But with so many financial options out there, where do we even start? One of your options is setting up a trust or series of trusts. While it’s no giant money bin, a trust can be an effective method of preserving your wealth for your future and for generations to come.
Definition of a Trust
What is a trust fund and how does it work? A trust is “a legal entity that holds property for the benefit of another person, group, or organization,” according to The Balance. The word “fund” in the term “trust fund” refers to a sum of money held by or made available to the trust. Regardless of type or provisions, all trusts have three things: a grantor, a beneficiary, and a trustee. Because I’m an estate planning lawyer, I tell my clients that The grantor is the person who sets up the trust, giving the trust its property and deciding the terms. The beneficiary is the intended manager of the assets in the trust. They can only access the trust as set out by the grantor. The trustee is responsible for overseeing the management of the trust. It can be an individual, institution, or group of advisors.
To be upfront with you, this organization does establish all of the different types of trusts mentioned here. If this is what you need, there is a number and a form on this page to get some extra help or to move forward on getting the right kind of trust established.
There are several types of trusts designed to fit the individual needs of the grantor and beneficiary. CNN says that there are two basic kinds of trusts: living and testamentary. A living trust is set up during a person’s lifetime, and takes effect during it. A testamentary trust only goes into effect after the person’s death. Beyond these qualifications, trust types break down into revocable and irrevocable. A revocable trust allows the grantor to retain control of all assets in the trust, allowing the ability to revoke or change the terms of the trust at any time. Irrevocable trusts, however, are no longer held directly by the grantor. Changes to an irrevocable trust usually can’t be made without the beneficiary’s consent. A big benefit is that appreciated assets within the trust aren’t typically subject to estate taxes. This depends on how it was established.
Once a grantor has chosen his or her trust type, transferred the assets into it, and established the terms, the trust is active.
Managing Your Estate
Everyone has an estate – from millionaires in mansions to a family of four struggling to make ends meet. Your estate encompasses everything you own. Having an estate plan in place means that your assets and property go directly where you want them to after you die. Generally, you have two main options for your estate plan: a living trust and a will. But what’s the difference?
A will is a written document that indicates how your property will be distributed after your death. It is revocable and can be amended anytime during your lifetime. However, a drawback to a will is that when it’s enacted, everything must go through probate court. A judge must make a ruling before the assets in your estate can get to your friends and loved ones. This is the case whether or not you have a will; your estate still goes through probate. In that case, assets are distributed according to state statutes. Regardless, probate can be a very expensive and time-consuming process. The deceased is not around to fight back, so, in many cases estates are depleted by lawyer fees.
A living trust, on the other hand, provides property and estate management. It not only goes into effect after your death, but can start managing your assets right away. The grantor (the one who set up the trust) is often the initial trustee (who manages the trust) and beneficiary (who receives its benefits). Living trusts are usually revocable and become irrevocable after death. At that time, a successor trustee steps in and new people or entities typically become beneficiaries. Most often the beneficiaries receive trust assets under the terms of the trust. They also avoid extra expenses and the publicity of probate court. The successor trustee that you appoint can be in charge of the trust whenever you want them to. Examples of when this would kick in are upon death or in the case of a mental or physical disability.
Setting up a living trust may be one of the best ways to prepare for your future, and the future of your loved ones. There are several other reasons to set up a trust, including the following:
- Caring for minor children – Trusts can specify when the child will have access to the assets
- Caring for dependents with special needs – Trusts allow more flexibility than a will in how those heirs can access the inherited property. This is because you can designate dates, amounts, exceptions, etc.
- Lowering estate tax – If your estate will be subject to tax, setting up a trust with tax provisions helps avoid some of it
- Privacy – Wills become public record after your death, but a trust does not.
Free Initial Consultation with an Estate Planning Lawyer
When you need a probate or estate planning lawyer, call Ascent Law for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506