When you hear the word “trust,” phrases like “trust fund” likely pop into your head first. This may compel you to think trusts are only for the rich and famous, but this couldn’t be further from the truth.
Anyone can benefit from establishing a trust, especially when it comes to estate planning. If possible, speak with your older family members about creating trusts since they can provide more advantages than other estate planning tools. Find out everything you need to know about trusts below.
What Is a Trust?
A trust, also commonly called a trust account or, yes, a trust fund, is a legal arrangement a person can make to ensure specific assets are inherited by their handpicked beneficiaries later on. The typical trust will feature three key players, including the following:
- A grantor who sets up a trust and fills it with assets
- A beneficiary who stands to take ownership of the assets in a trust
- A trustee who enables a person to create a trust
What Are the Different Types of Trusts?
While all trusts serve similar purposes, they don’t always operate in the same manner. You need to know which types of trusts are available to select the one that’ll provide the benefits you’re looking for.
A testamentary trust is one example of a trust you may want to use during estate planning for yourself or an older family member. This kind of trust is based on the terms listed in a person’s will and won’t receive funding until a person dies.
Grantor-retained annuity trusts, or GRATs, are also effective trusts for those interested in utilizing them for estate planning purposes. You can freeze the value of the assets you put in a trust and reduce the impact that the appreciation of assets can have on estate taxes.
Several other types of trusts are:
- Charitable trusts
- Qualified personal residence trusts
- Qualified terminable interest property (QTIP) trusts
- Special needs trusts
- Spendthrift trusts
There are even generation-skipping trusts that grandparents can use to pass down assets to grandchildren and anyone at least 37.5 years younger.
Is a Revocable or Irrevocable Trust Better for Estate Planning?
In addition to understanding the different types of trusts, you should know what separates a revocable trust from an irrevocable trust. Both can help people during the estate planning process, albeit in different ways.
A revocable trust, sometimes called a living trust, is one that a grantor creates and then changes throughout their life. A person can adjust which assets they keep in a revocable trust and who stands to take ownership of them until their final days. Any assets kept in a revocable trust can help beneficiaries bypass the normal probate process.
An irrevocable trust, on the other hand, is a trust that is permanent once it has been created and funded. It offers much less freedom than a revocable trust, but it minimizes estate taxes since the assets put into it will belong to the trust and not the grantor.
An estate planning professional can help someone decide whether a revocable or irrevocable trust would be a better option based on their circumstances.
What Are the Benefits of a Trust?
Establishing a trust can provide you with a long list of benefits. Here are several important advantages to utilizing a trust:
- Protects assets placed in it
- Helps beneficiaries avoid the probate process in the future
- Allows a person to determine how to distribute assets from a trust
Creating a trust won’t always be cost effective for everyone, but it’s an option worth exploring while taking part in estate planning.
What Are the Steps Associated With Setting Up a Trust?
Before setting up a trust, find an estate planning professional you know you can count on to assist you. Then, take the following steps to bring your trust to life:
- Choose which type of trust you would like to create.
- Put together a trust document with help from a lawyer experienced in these matters.
- Sign a trust document and have it notarized.
- Open up a trust.
- Add assets to a trust and decide who the beneficiaries for them should be.
Forming a trust can provide peace of mind for an older person and their family members. Look into creating one for yourself or a family member to learn how it can help.
Call Rockpoint Probate Funding To Assist in a Loved One’s Probate Process
If a loved one dies without a trust or, worse, without a will, it can make their probate process last for a long time. It can prevent you from accessing the inheritance they left behind for you.
Let Rockpoint Probate Funding help when this is the case by providing a probate cash advance. Contact us at (323) 484-1063 to hear how one works and determine whether it might be right for you.