More magic than you ever thought was possible

It is a common misconception that trusts, or trust funds as they are commonly called , are only useful for wealthy people. When set up properly, trusts can be appropriate for people with minor children or those who want to avoid having their estate go through probate upon death. These are basic facts about trusts – but, be sure to consult a licensed attorney experienced with estate planning and trust matters before making any final decisions about if one is right for you.

If someone approaches you to set up a trust be very cautious. Before signing any papers to create a living trust, will or other kind of trust make sure to explore all options and shop around for this service just as you would for any other.

trusts


How Trusts Work

 

Creating a trust (or trust fund) establishes a legal entity that holds property or assets for the person who created it. The person who creates the trust can be called a grantor, donor, or settlor. When the grantor creates the trust he or she appoints a person or entity (like the trust department of a bank) to manage the trust. This person or entity is called a trustee. The grantor also chooses someone who will ultimately benefit from the trust, this person is the beneficiary. In some situations the grantor, trustee, and beneficiary are all the same person. In this case, the grantor should also appoint a successor trustee and beneficiary in case he or she dies or becomes incapacitated. A trust is a helpful estate planning tool because after death a trust doesn't go through the probate process like a will does.


Reasons To Set Up A Trust

 

Some common reasons for setting up a trust include:

  • Providing for minor children or family members who are inexperienced or unable to handle financial matters
  • Providing for management of personal assets should one become unable to handle them oneself
  • Avoiding probate and immediately transferring assets to beneficiaries upon death
  • Reducing estate taxes and providing liquid assets to help pay for them
  • The terms of a will are public while the terms of a trust are not so privacy makes a trust an attractive option

Types of Trusts

 

Trusts can be living (inter vivos) or after-death (testamentary). A living trust is one that a grantor sets up while still alive and an after-death trust is usually established by a will after one’s death. Living trusts can be irrevocable (can’t be changed) or revocable (can be changed) although revocable trusts don’t receive the same tax shelter benefits as irrevocable ones do. The most popular type is the revocable living trust. If there’s a specific purpose in mind for the trust, dozens of different options exist. Some examples include charitable trusts, bypass trusts, spendthrift trusts, and life insurance trusts. New laws have even established a trust that will care for a pet after one’s death.