A Trust Can Serve Vital Purposes For Your Family’s Stability
Many people have preconceived notions about trusts and believe that they are only for multi-millionaires who wish to leave large trust funds to their children. However, this is far from the truth; trusts can be invaluable tools in the estate plans of millions of individuals.
Trusts are simply an arrangement where one party holds property on behalf of another party. In an estate planning context, trusts are created by the person doing the estate planning (the settlor), who authorizes another person (the trustee) to manage the assets for the benefit of one or more third parties (the beneficiaries). There are many reasons for establishing trusts including tax minimization or providing for the needs of underage beneficiaries.
Some types of trusts that may be useful in estate planning are:
- Trusts for minors. Many people leave money to their children or their grandchildren in a trust as part of a comprehensive estate plan. This is typically done to ensure the money is there for the children’s benefit while they are younger-for support, education, medical expenses, etc. Once the children reach a certain age or achievement level (such as obtaining a bachelor’s degree), they may receive money from the trust to do with as they please.
- Marital trusts. Married couples sometimes include trusts in their wills, or separately, for the benefit of their spouse, typically for two reasons: (1) taxes, and (2) property protection. In previous years, marital trusts were needed for some couples to take advantage of estate tax exemptions, and they may be needed in the future as the laws are expected to change. Marital trusts can also protect property from a spouse to ensure that it ultimately goes where it needs to go. For example, a husband with grown children from a previous marriage may want his wife to have use of his property after he passes, but wants any property remaining at her death to go to his children.
- Revocable trusts. Revocable trusts are documents completely separate from wills although they often work hand in hand with wills to carry out the decedent’s wishes. Revocable trusts are primarily used to avoid probate, provide for more efficient administration at of assets at incapacity or death, provide privacy and protect beneficiaries.
- Irrevocable life insurance trusts. Irrevocable life insurance trusts (or ILITs) can be used in order to move a person’s life insurance proceeds outside his or her estate for estate tax purposes. ILITs are also used to provide liquidity from insurance proceeds where a settlor expects to need cash to pay expenses and estate taxes.
- Spendthrift trusts. Spendthrift trusts are generally established to protect the beneficiaries’ assets from both themselves and creditors. These trusts usually have an independent trustee which has complete discretion over the distribution of assets of the trust.
As you can see, there are many different types of trusts, each of which can be customized to serve a valuable purpose in accomplishing the wishes of those making gifts or planning an estate. The Schormann Law Firm, LLC, can help you assess your finances and goals to determine the best vehicles to preserve your wealth and your legacy. Call 636.875.7653 or reach out online.
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