If you are in the process of planning your estate, you probably have heard of something called a trust. This is a great tool that offers many benefits. Learn what a trust is, when it is best to use a trust, what the benefits, and what the different kinds of trusts are.
What Is a Trust?
Essentially, a trust is an agreement where a third party, who is called the trustee, holds a set of assets before they are given to a beneficiary. So, for example, if you were planning to leave an amount of money to an heir, choosing to pass on this money in the form of a trust would turn the money over to a trustee until certain conditions are met, at which time the money will be transferred from the trustee to the beneficiary of your choice. Usually, a trust has some kind of condition which determines when the assets are given to the beneficiary. The benefactor is able to make these conditions anything they wish, and can even make the amount of assets given to the beneficiary conditional. This is just the basics, however, and there is a wide range of different kinds of trusts, and each one works slightly differently. The variety of different trusts includes:
- Marital Trusts
- Bypass Trusts
- Generation Skipping Trusts
- Grantor Retained Annuity Trusts
- Testamentary Trusts
- Charitable Remainder Trust
- Qualified Terminable Interest Property
One of the most important distinctions to make when choosing a trust is whether it is revocable or irrevocable. There is a simple difference between these two types of trusts. Revocable trusts can still be accessed by the benefactor. An irrevocable trust, on the other hand, is completely inaccessible by anyone until the conditions are met. Ownership of the assets are completely removed from the benefactor.
The Benefits of a Trust
You may be wondering why it is more beneficial to put assets into a trust, rather than to simply leave them to the beneficiary directly. There are two primary benefits: control and savings. Because of the way trusts work, the benefactor has a large amount of control over where the assets go and who can receive them. This is usually the primary benefit benefactors have in mind. Additionally, however, trusts are either not subject to estate taxes, or pay less in taxes. In addition to saving money, using a trust can save time by skipping the probate process. An estate lawyer can tell you more about how to set up a trust.