One of the most common questions we receive is, “Do I need a Trust?” Before we can answer that question, we need to learn more about the client’s goals and to educate them on the benefits a trust can provide.
What is a trust? A trust is simply a legal entity that holds property or assets for the person that created it. The person who creates the trust is called the grantor. When the grantor creates the trust he or she appoints a person or entity 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 known as the beneficiary. It is also important that a successor trustee is appointed in the event that the trustee dies or becomes incapacitated and is not able to fulfill their duties.
Who should have a trust? There is a misconception that trusts are only for the ultra-wealthy. Trusts can be appropriate for anyone that wants to control their assets. Some of the most common reasons to set up a trust are to provide for minor children or a family member that is unable to handle financial matters or to provide for management of financial matters for someone that becomes unable to handle their finances because of age or illness. Trusts can also be helpful in reducing estate taxes and assets held in a trust would avoid probate. The terms of a will are public record, but the terms of a trust are considered private. This point is attractive to someone that wants to maintain privacy of their financial matters. It is important to know that at death assets that have listed beneficiaries, such as life insurance policies, IRAs, 401(k)’s, etc., will be transferred to the beneficiary listed regardless of what your trust has indicated. Coordination between your financial advisors and your legal team is important to ensure your wishes are carried out as you have intended.
Just because your neighbor or friend has a trust doesn’t necessarily mean you need one. If someone approaches you to set up a trust, avoid high-pressure sales tactics and high speed sales pitches. Take the time to work with a financial planner and an attorney to determine if your financial situations warrants one. Your team of professionals should take the time to learn about your financial goals and explain how a trust could potentially benefit you and your family.
In closing, a trust can be a very beneficial tool in allowing you to control the distribution of your assets and minimizing estate taxes due at death. However, it can be an expensive process that is not needed at all. Before you commit the time or money, take the time to learn if a trust makes since for you.