People use trusts for transferring assets to assigned beneficiaries while they’re among the living or after their deaths. A trustee, such as a person, a financial institution, or any other reliable legal entity, is responsible for holding on to the assets in the trust fund until it’s time to forward the assets to the rightful beneficiaries.
Hearing the words “trust fund” or “trust” might make you think of incredibly wealthy families and their mansions, with a lot of wealth going down from one generation to another. However, even if you’re not Gates or a Rockefeller family member, you’re can easily set up a trust and benefit from it. A trust is a legal document allowing a third party, known as a trustee, to safeguard and direct all the assets within a trust fund on behalf of all beneficiaries.
These are some of the things you must know about trusts and their role for your retirement:
1. There Are Different Types Of Trusts To Choose From
Many types of trusts exist, and each is created in a manner that allows you to accomplish different goals. These are several examples of most commonly used trusts today:
- Revocable Vs. Irrevocable Trusts
People often believe that a trust is an alternative to a will, and is just another way to distribute assets and wealth after a person dies. However, it’s possible to create a trust that allows you to pass on assets while you’re alive. This kind of trust is also known as a revocable trust. A revocable trust gives you full control over the assets while you’re alive. However, it can be changed or even dissolved while you’re still alive. The only downside is that while a revocable trust usually keeps all your assets out of probate processing in case you die, you most probably won’t be able to escape the estate taxes.
When does a revocable trust become irrevocable? Generally, this happens when the grantor dies. However, there are ways to circumvent this. Contact an estate planning attorney to help you put in specific language that will better protect your interests. An irrevocable trust can’t be changed once it has been created. This also means you’re giving up the control of all the assets stated in the irrevocable trust. An irrevocable trust will protect beneficiaries from estate and probate taxes.
- ‘A’ Trusts or Marital Trust
Trusts like marital or ‘A’ trusts are designed to benefit the surviving spouse and is often included in the estate that undergoes taxation. A surviving spouse will inherit all assets from the marital trust, and all income that has been generated by those assets will go to the spouse. If the surviving spouse dies, the assets usually go to the married couple’s heirs.
2. A Trust Facilitates Asset Distribution
Creating a trust will minimize costs and stress for your loved ones in the future. Trusts are often used in addition to an existing will—both allow for the easy distribution of assets after your death. Moreover, trusts offer a variety of essential planning benefits that aren’t included in a will. One of these benefits allows your heirs to have an effective and relatively fast conclusion for settling the estate you left behind.
Hire a financial planner or a lawyer to help you create a trust that will protect your assets, minimize taxes, and spare your children from going through the lengthy probate process in court. In case of sudden death, your last wishes will be carried out without any issues. A trust also helps determine how the money will be paid out and to whom all your assets will go. This is very useful in case the beneficiary is a family member or a child whose ability to handle money is contentious.
Creating a trust allows you to:
- Decide when your beneficiaries will have access to your assets as well as to whom your assets will go to;
- If your beneficiaries are children, a trust will save them from paying for court fees or estate taxes;
- Protect all your assets from loss through divorce settlements or from creditors that your beneficiaries might have;
- Include assets like real estate, investments, or cash into your trust.
3. Having a Trust Will Get You Ready for Retirement
A retirement trust offers continuous tax advantages for your existing retirement account, and the trust will additionally control it. Having a retirement trust allows your trustees to know that the retirement account will be managed and stretched during the beneficiary’s entire lifetime. To avoid accelerated income tax exposure, your retirement trust maximizes the possibility that all the assets will be available for all future generations after the beneficiary’s death. Moreover, a retirement trust will protect beneficiaries from creditors, divorce, and spendthrifts.
Creating a trust before your retirement will allow you to settle down easier and enjoy the time you have left without worrying about your family’s future. Never wait for the last moment to create a trust since it can be too stressful and often too late.
In case you don’t know how to create a living trust, make sure to find a lawyer that’ll help you understand how trusts work and come up with the most suitable solution. There are numerous types of trusts, and you need to consult your attorney to understand which one best suits your situation. Having a trust made will allow you to enjoy your retirement years without thinking about the complicated bureaucratic procedures and tax burden your family might have to go through.