What You Need To Know About Trusts
The legal and written pact between the owner of a property and a trustee is called a trust. With this agreement, a grantor transfers his property to a trustee for management in the name of the grantor’s beneficiaries. A trust is essential for any asset protection or estate plan because it contains guidelines and procedures to be followed.
Trusts have shared characteristics. For example, trusts include one or more trustees and several named beneficiaries. The provisions of a trust are obligations of a trustee, and he/she is accountable for their execution. The beneficiaries are entitled to the income or principle from the trust in the present or the future.
In previous years, trusts were mostly utilized by the affluent to maintain privacy and pass on their wealth to the succeeding generations. The increasing awareness of the benefits of trusts has seen more people adopt their use regardless of their financial class.
Trusts can either be revocable or irrevocable. Trusts that are revocable can be altered. Revocable trusts are not final with their measures on asset protection. An irrevocable trust is unbendable. The content of the trust is final, and nothing can be changed about them. There are many types of trusts; living trust, life insurance, limited term, privacy trust and testamentary trusts.
Living trusts are used a lot, and they take effect during a grantor’s life. The advantages of this trust is that it helps to reduce estate taxation, dodge probate and maintain asset management when a settler becomes incapacitated or ceases to live.
Life insurance trust is the most efficient in estate planning and asset protection strategies. They help to shield an estate from high tax. They exclude the grantor’s life insurance policy or policies from the estate tax, which means the heirs get the entire amount of the life insurance policy.
A limited term trust entitles a trustee or trustees partially in respect to time. After a term elapses, all the property in a trust is returned to the settler. This type of trust allows the assets of a trust to be protected, but accessible to a settler if he wants them again.
A privacy trust is meant to provide financial secrecy. When drawn well, they successfully conceal the ownership of bank and brokerage accounts, rental properties, family home and any interest in other entities.
A testamentary trust cannot be implemented unless the grantor ceases to be. Testamentary trust is typically outlined in a will. Their advantage is that they guarantee an inheritance for children from another marriage or a surviving spouse. A settlor determines the age with which his benefits can be released to heirs who are not yet of age at the time of his/her death.