In reading my blog heading, you may be thinking “Why would I bother to even read this? I have no need to know about Trusts.” Or do you? And my answer would be “YES!“ You should have some basic understanding of the uses of Trusts and whether or not there would be any benefit in creating a Trust at this point in your life. While there are many types of Trusts and several reasons for creating a Trust, a basic understanding of Trusts can be helpful to determine if you should speak to your accountant and/or attorney to assist in planning for the future. As Baby Boomers and early year Generation X’s are now in their 50’s and 60’s, a midlife plan should not only include a medical checkup but a financial one as well. This should include reviewing your future financial situation/needs during your retirement years and any estate planning you may want to consider. And this is where Trusts could come into play.
- Avoid Probate & distribute assets efficiently and privately to your heirs
- Ability to control how your assets are to be distributed
- Shifting burden of managing assets to a Trustee
- Creditor Protection
- Preservation of assets to future generations
- Charitable Giving Purposes
- Tax Savings
The 2 basic types of Trusts and their purposes:
“Revocable” or “Revocable Living” Trusts
- Can be altered or revoked during the lifetime of the Grantor
- Primary purpose is to avoid Probate which can delay distributions of assets in addition to the cost of the Probate process. Probates are public records and therefore anyone can access the records.
- Income is reported on the Grantor’s personal income tax return.
- Cannot be altered or revoked after creation
- Primarily used for asset protection and estate tax liability purposes
- Medicaid/Elder Care Planning
- Gift Planning
- Income is reported as the grantor’s or is reported separately as the Trusts depending on the type of Irrevocable Trust.
Types of Trusts by timing of funding:
- Irrevocable because it is created at death
- Trust becomes effective at your death. These can be created within your will.
Inter Vivos Trust
- Trust is created during the life of the Grantor
- Can be Revocable or Irrevocable
These are just two of the basic forms of trusts. There are many other forms and flavors of trusts used for asset protection and estate planning. Now that you have a basic understanding of Trusts and their purposes, you may want to discuss further with your attorney or accountant.