When people think of trust funds, they often think they’re only for wealthy families who want to pass some of their wealth down to others. However, this isn’t necessarily the case. While they are designed for individuals who want their money to go to certain recipients, there’s no reason middle-class people can’t also benefit from them. In many cases, trusts are the best available option.
What is a Trust?
A Trust is basically an agreement involving three parties: the grantor, the trustee and the beneficiary. The grantor creates the trust and decides the terms upon which it operates. The trustee is appointed by the grantor to manage the trust and its assets. The beneficiaries can be members of the grantor’s family, friends, or charitable organizations.
How Trusts Work
Once a trust has been created, it is funded by gifts from a donor. The grantor is usually the donor, but sometimes a trust can receive gifts from other parties. These gifts are then invested by the trustee, according to the trust’s terms. The principal and any profits, interest, or dividends earned under the trust are also distributed by the trustee.
Creating a Trust
The first thing to do when setting up a trust is to hire an attorney who’s certified in estate planning. Be sure to bring all relevant documentation to the initial consultation. This would include a complete list of assets, beneficiaries, and possible trustees. Professionals, like those at Home State Bank, know that you should be clear about your motives and priorities before consulting with an attorney. This makes it easier to determine which type of trust will best suit your needs. Once this has been established, you’ll have to catalog your assests, choose a trustee, (or trustees) and name your beneficiaries.
Putting Money into a Trust
Once the proper forms have been filled out, your attorney will instruct you on how to transfer your assets into the trust. If there’s real estate involved, you’ll have to deed the property into the trust. Bank accounts will have to be renamed, or new ones opened specifically for the trust, depending on the bank’s own policies. Vehicles must be signed over and registered to the trust. Jewelry and other small property can be stored in a safe deposit box under the name of the trust.
Types of Trusts
There are many different types of trusts, all to suit different needs. A living trust goes into effect during the grantor’s lifetime. Testamentary trusts don’t go into effect until the grantor dies. There are also revocable and irrevocable trusts. The terms of a revocable trust can be changed at any time by the grantor, whereas the right to do so is forfeited in an irrevocable trust.
Some types of trusts address very specific needs. For example, a bypass trust is designed to help spouses avoid estate taxes by increasing the amount of money they can pass on to their heirs. A special needs trust allows for the support of people who aren’t able to manage their own finances. A qualified terminal interest property trust (QTIP) protects funds intended for the children of a parent who passes away, so that in case the surviving spouse remarries and also dies, the children will receive the money instead of the second spouse’s surviving spouse.
Ultimately, a trust is the best way to ensure that the right beneficiaries receive any assets intended for them. While there are less expensive alternatives to trusts, none of them offer the grantor the same level of control. For this reason, trusts are the most effective method smart individuals can rely on to ensure the future of their family.