When setting up an estate plan with your financial planner, expect him to protect your assets by including one or more trusts. They can be worth their weight in gold.
Few people clearly understand what trusts can do or just how they work. A trust can provide for you and your family, allow easy access to property, and help you avoid probate. But there are many different types of trusts, and they won’t all do what you want. You must be careful that your trust accomplishes your specific wishes, has all the necessary ingredients, and will do the job you chose it for.
Grasp the Basics of Trusts
A trust in its simplest form transfers assets from one person to another. It can bypass estate taxes, avoid probate, and revamp your life insurance to benefit your estate plan. A trust is one of the most flexible estate tools available today. It can do just about anything that’s legal and not contrary to public policy.
All trusts, from simple to complex, contain the same four elements:
- The donor or grantor is the person who creates the trust.
- The property includes all assets put in the trust. It’s sometimes called the corpus.
- The trustee is the person who promises to follow the donor’s instructions as set forth in the trust.
- The beneficiaries are those who received benefits from the trust.
Assign Your Assets
Any type of asset can be placed into a trust, from antiques and real estate to bank accounts, securities, or life insurance. But before you fill your trust, you’ll need to pick up someone to be your trustee. You can choose whomever you want, including yourself, your spouse, or your children.
After you decide on a trustee, you need to re-title your assets into the trustee’s name. If you go through the trouble of having a trust, and you don’t put your assets into it, it’s useless. As trustee of your own revocable trust, you can keep control over your assets.
Choose The Right Trust
Everyone’s needs are different, so talk to your estate planner about the trusts that are right for your financial situation. Here are the three types of trusts you may want to consider:
A living trust allows you to sidestep the time-consuming and public process of probate court. And you don’t have to be rich to have one. Even if your estate is small, you’ll benefit because a living trust will keep your estate in your loved ones’ hands – not the government’s. It also avoids probate if you become incapacitated for any reason, allowing you to change control of your assets in an organized, private manner.
A bypass trust allows your estate to bypass taxes. The trust is designed to kick in upon your death, allowing your spouse to have almost full use of all funds in the trust, Upon your spouse’s death, those funds would bypass his or her estate and go directly to your children.
A life insurance trust takes your life insurance out of your estate, allowing it to bypass taxes. To get the tax benefits, you’ll need to have someone else as the trustee. The trust is set up outside your estate, and you have no control over it. Upon your death, the proceeds go into the trust and are held for your spouse and children. It’s very effective and a wonderful loophole.