When thinking about estate planning, the first thing that typically comes to mind is a will.
While a will is a necessity when formulating a plan, establishing a trust fund is another effective way to pass on the story of you. A trust is a great choice for people who have larger estates and want more access and flexibility with their estate planning.
Here are five things to know about trust funds.
A trust is private and accessible … to the holder
One challenge that a will presents is that it is required to go through probate and becomes a public document. In some states, certain parties are even entitled to their own copies. A trust, on the other hand, is a private document that never sees a courtroom. No one other than the trustee and the designees can see a copy of the trust contract. In addition, assets placed in a trust can easily be accessed according to the terms set by the grantor—immediately, at a certain age, or under specific conditions.
Your trustee executes your wishes
When you establish a trust, a trustee is appointed to manage and distribute the assets according to your wishes. This person or institution is legally obligated to follow the instructions as outlined in the trust agreement. Upon your passing, the trustee steps in to ensure assets are distributed to beneficiaries as you intended. This can provide peace of mind, knowing that your loved ones will be taken care of in the way you envisioned.
Trusts can lower taxes
Life insurance benefits are usually included in your estate. This payment can push an estate over the threshold for federal income tax. Irrevocable trust funds, on the other hand, can help reduce or eliminate estate taxes owed after the trust fund holder dies. Trust accounts can also spread an estate’s capital gains among several parties, lowering the total taxes paid on the proceeds of the sale of a house or other significant assets.
They allow for greater control
While a will simply dictates who receives your assets after you pass away, a trust allows you to set specific terms and conditions for how and when those assets are distributed. For example, you can stipulate that a beneficiary receives their funds upon reaching a specific milestone, such as graduating from college. This allows you to continue to be a part of your family for years into the future.
No attorney or witness required
While it’s always advisable to consult with a legal professional when setting up a trust fund, it’s not a legal requirement to have an attorney or witnesses present. Trusts can be established by simply creating a trust agreement (which outlines the terms and conditions of the trust) and transferring assets into the trust.
Depending on your wishes and the size of your estate, you have choices on whether to establish a trust fund, a will, or both. A will kicks in after someone’s passing and requires a probate process. A trust takes effect as soon as it’s funded and never reaches the courts. The two play distinct roles in ensuring your wishes are met.
If you have questions about trust funds, or estate planning in general, contact an LPL Advisor* with SELCO Investment & Retirement Services. They’ll be happy to help.
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