Do You Need a Trust?
A common misconception is that trusts are reserved for the wealthy. The truth is, many people can benefit from a trust. Do you think you are one of those? You may be surprised. There are many types of trusts that a family can set up. It all depends on what you want the trust to accomplish. Here’s a few things to consider when setting up a trust:
What is a trust?
Generally speaking, a trust is a legal entity that is central to a three-part agreement in which the owner of an asset, the trust grantor (This is you); transfers a legal title of that asset to a trust for the purpose of benefiting one or more beneficiaries. I should have warned that trust language can be kind of wordy, so please bear with me. The trust is then managed by one or more trustees. You can determine who the trustee might be. Either a loved one, close friend or relative, or even a financial institution. Trusts may be revocable or irrevocable, and may be included in any will to take affect of death.
Revocable trusts can be changed or revoked any time. For this reason, the IRS considers any trust assets that will be included in the grantor taxable estate. This also means that the grantor must pay income takes on revenue generating by the trust, and possibly estate taxes on those assets remaining after his or her death.
Irrevocable trusts cannot be changed once they are executed. Simply put, “Once you move, you lose”. The assets placed into the irrevocable trusts are permanently removed from a grantor’s estate, and transferred to the trust. Income of capital gain, taxes on assets in the trust are paid by the trust. Upon a grantor’s death, the assets in the trust are not considered part of the estate, and therefore not subject to estate taxes. Most revocable trust become irrevocable at death, or disability of the grantor. […]
