The Fundamentals of Trusts
Trusts: A Powerful Tool for Protecting Wealth
Despite what the term “trust fund baby” would suggest, trusts are not just for billionaires, celebrities, or old-money families. Trusts are a powerful tool for protecting wealth, both during life and following one’s passing, even for people of less-than-Vanderbilt means.
When a trust is set up, wealth—be that cash, real estate, or other assets—is removed from the control and management of you, the grantor, and put under the fiduciary care of a third party, the trustee or trustees. A trustee may be an individual, individuals, or a financial institution. Beneficiaries of a trust may be allowed to use the assets held in trust and/or may receive payments out of the trust’s income. It is possible for the grantor to be a beneficiary of a trust, as in the case of persons who set up trusts to help pay for their long-term nursing and care costs, but the grantor will have no role in the management or distribution of funds to his or herself.
By removing this wealth from your control, you can ensure that your property is taken care of even after your death. Additionally, a trust reduces your estate tax liability.
There are two basic kinds of trusts: revocable and irrevocable.
A revocable trust gets its name in that it may be altered or dissolved at any point before the grantor’s death. While a revocable trust has the benefit of keeping your affairs out of probate, preserving your privacy, these trusts are not designed to reduce tax liability. This is because, due to their revocable nature, it is possible the property can return to the direct control of the grantor, making a tax break unfair.
Upon a grantor’s death, the trust becomes irrevocable and instructions for distributing the trust’s assets go into effect.
In contrast to a revocable trust, an irrevocable trust can never be altered or dissolved following its creation. The assets held in trust remain forever out of the control of the original grantor. These trusts are suitable for people looking to fund their nursing home expenses, care for substantial real estate holdings after ill health precludes them from doing so, or who want to minimize their estate tax liability for their families.
Safeguarding Your Legacy
If you have complex or substantial assets, a trust can be an important tool in your estate-planning toolkit—but it can be daunting to know where to begin. Our experienced estate-planning and trust attorneys are here to help. With years of experience in assessing estates and designing plans to protect wealth for families, we can determine your particular needs and the best course of action to safeguard your interests.
Contact our office to discuss what kind of trust may be right for you.