I’m sure you have noticed that wealthy people have trusts. There is even the phrase “trust fund baby” to describe a person who benefits from their parents’ or even grandparents’ wealth.
There is a lot of misunderstanding about what a trust can do for you. Many people do not consider establishing a trust, as they do not consider themselves millionaires or billionaires. However, understanding what a trust can do for us, as regular individuals, and how it can help you achieve your financial goals is fundamental.
First of all, what is a trust?
A trust is a private legal document where a person or entity transfers assets to a third party to hold and manage them for the benefit of others.
The parties on a trust are:
- Grantor: The person who creates the trust
- Trustee: The individual or entity appointed to manage the trust assets and distribute them according to the grantor’s specific instructions
- Beneficiary: The person or people who receive benefits from the trust
For practical purposes, there are two main types of trusts:
- Revocable (changeable)
- Irrevocable (unchangeable)
What is the trust used for?
Trusts are created for various purposes, including protecting family assets from creditors, minimizing estate taxes, providing economic security for beneficiaries with special needs (such as elderly individuals or those with disabilities) or children, and ensuring the controlled distribution of assets to the next generation.
Properly structured trusts can shield assets from creditors, lawsuits, divorce, and other liabilities.
Please note that there is no perfect tool to wall you off from problems, but each properly structured and executed document can provide layers of protection. Documents such as trusts act as filters to shield your assets.
Additionally, trusts tend to avoid probate, allowing for a faster distribution of assets after death.
Benefits of the Trusts
There are several notable benefits. The most prominent, from a legal perspective, are:
- Care for Beneficiaries. Trusts can provide for the care of minors or individuals with special needs, including yourself, ensuring they receive funds without affecting their eligibility for certain government benefits.
- Control Over Distribution. Trusts allow for detailed instructions on when and how assets are distributed, providing control over beneficiaries’ inheritances over time.
- Privacy. Since trusts are private documents, they can provide a filter that public documents can’t provide
What is the difference between a trust and a will?
A will gives money to the beneficiary like a gift, while a trust imposes control and conditions for the disbursement, according to the wishes of the grantor.
More Types of Trusts
- Living Trust: This trust is created and funded during the grantor’s lifetime
- Testamentary Trust: A trust created through a will, becoming effective only after the grantor’s death
- Special Needs Trust: Designed for individuals with disabilities. This is a smart move if you want the beneficiary to receive government assistance
- Spendthrift Trust: Distributes assets over time to beneficiaries to ensure they last and are protected from creditors
Who needs a trust?
Attorney Marcos advises some clients to create a trust, especially those who have assets such as savings, stocks, real estate, or insurance policies. Some of the candidates to consider a trust are persons who have minor children and want to protect them in case parents die, not only providing money, but also creating conditions for administering the disbursement of the money. The same happens if you want to protect disabled individuals or yourself in your old age when you cannot make decisions anymore.
For example, you can set a fund for your grandchildren who are supported with a fixed monthly amount, pay for education, increase it if they finish college, or establish other conditions you wish to develop.
Or create a trust that benefits your wife during her lifetime, then your children, but not your stepchildren, and so on.
Another set of candidates are business owners, who need to protect their business and assure its survival even when the founder is not longer in this world.
You can also form a trust to protect your assets from creditors or reduce your financial burden. Please consult your accountant or financial advisor for the tax and economic implications.
In short, when properly used, trusts can be a valuable legal tool to protect your assets and distribute them according to your wishes and interests, even when you are no longer alive.
Trust should be considered by all who have assets to protect, no longer the prerogative of the hyper-wealthy and famous.
Marcos Law
Attorney Marcos E. Garciaacosta with Marcos-Law.com can assist you in preserving your wealth through legal tools such as wills and trusts, especially if you are a business owner. Let us help you create generational wealth and a lasting legacy. Call us at (480)324-6378 to schedule a consultation.