Trust basics

Trusts can play an important part in meeting your estate planning goals. For example, trusts can help you plan for incapacity and control how your assets are distributed after your death. While it usually takes an experienced estate planning attorney to prepare a trust document to meet a specific purpose, it is helpful for anyone considering using a trust to have an idea of some of the basic concepts.

There are three key groups involved with the workings of a trust. They are:

The Grantor (Settlor or Trustor)
-- This is the person who creates and funds the trust.

The Beneficiary
-- This is the person or people who benefit from the trust. The benefit might be in the form of income from the trust or perhaps the use of property to which the trust has title to.

The Trustee
-- This is the person who holds legal title to the trust’s assets. This individual administers the provisions included in the trust document and acts in the best interest of the beneficiary.

Once the trust is established, it needs to be funded. This entails putting assets into the trust that will meet the trust’s objectives. For example, if you have a personal account containing stocks and bonds, you might set up another account in the name of your trust and transfer the assets from your personal account into the trust account. These assets are now in the trust and will be distributed by the trustee according to the trust provisions.

Potential Trust Advantages

-- May minimize estate taxes
-- May shield assets from potential creditors
-- Avoids the expense and delay of probate
-- May manage assets for children until they are able to do so themselves
-- Trust assets may be managed by professional money managers
-- Helps deal with issues of incapacity
-- May shift income tax burdens to beneficiaries in a lower tax bracket
-- May provide benefits for charity

Potential Trust Disadvantages

-- The costs of setting up and maintaining a trust
-- In certain situations there may be a loss of control over trust assets
-- The time required to comply with recording and notice requirements
-- The income generated by the trust and not distrusted to beneficiaries may be taxed at a higher rate than individuals.

Trusts can be complicated, and there are many different types of trusts, which may be appropriate depending on the goals you want to accomplish. It is best to have a discussion with a qualified estate planning attorney to determine the best trust structure to meet your needs. Also, your accountant will be able to help you with the tax implications of a trust.