What Is the Point of a Trust Fund?

Types of Trust Funds

A trust fund is an estate planning tool that a legal entity, called a grantor, establishes to hold property or assets for a person or an organization. The trustee in these cases is the individual who manages the assets. Trust funds can hold a variety of assets, like money, property, stocks and bonds, a business, or a combination of different types of assets. The beneficiary of a trust is the individual chosen to receive the trust fund assets.

The main motivation for establishing a trust fund is to create a way for assets to be held, gathered, or distributed. Typically, the nature of the trust fund is that it establishes a means for an estate to be carried out after the grantor is no longer living or competent. There are many different types of trust funds, but these are the most common:

  • Revocable trust

A revocable living trust is a trust document that can be changed over time. Revocable living trusts are used to avoid probate and to protect the privacy of the trust owner and beneficiaries of the trust. It can also minimize estate taxes. These types of trusts allow the grantor to better control the assets throughout their lifetime. They are able to transfer their assets to designated beneficiaries after their death. Revocable trusts are distributed with a high level of privacy and are not made public. While the grantor is alive, the details of the trust can change, evolve, or be revoked entirely.

  • Irrevocable trust

An irrevocable trust removes certain assets from a grantor’s taxable estate, and the incidents of ownership are transferred to a trust. The primary motivation behind setting up an irrevocable trust is for estate and tax considerations. It removes all incidents and ownership. The trust now owns the assets, which you retitle or register in the trust’s names. At this point, the trust will have no bearing on your wealth, the value of your estate, or your tax liability.

An irrevocable trust is actually governed by a trust document and has its own tax identification number. Irrevocable trusts offer asset protection from future creditors and lawsuits. If it is properly structured and managed, you cannot be asked or forced to give up the assets in the event that you would be sued. They also shield you from recovery for long-term care expenses.

Benefits of Setting Up a Trust

When you think about supporting your loved ones after you pass, you might think of a will before you think of a trust. However, there are many unique benefits to setting up a trust. It will streamline the process of transferring an estate after you die while. Other benefits of setting up a trust include:

  • Avoiding the probate process

When your assets go into a will, they will need to go through probate in order to be verified and distributed properly. Avoiding the probate process will make for a quicker and simpler way to distribute your assets when you die. Furthermore, a will becomes part of a public record, while a trust agreement remains private. This allows you to keep the process between your attorney your trustee. When you are transferring these important assets, you want the process to be simple but private, which a trust will facilitate.

  • Providing tax benefits

Irrevocable trusts are often used to reduce estate taxes and in some cases, they can reduce income taxes. Because your assets are no longer part of your estate, tax benefits can transfer over. However, contributions to a trust can be subject to gift tax liabilities. If certain conditions are met, the assets can be protected from estate tax after death.

  • Parameters for the use of your assets

When you establish a trust under your will or create a separate trust agreement, it gives you the ability to personalize your estate plan in the way that fits you and your beneficiaries. This means you can include rules like age attainment provisions or rules in terms of how the assets will be used. For example, some of those who set up a trust might decide that the assets should be distributed when the beneficiaries turn 18 and to only be used for a specific purpose like college tuition.

  • Easing of the process during sickness or disability

When you set up a will, it will only go into effect when you pass away. A trust, on the other hand, can be used to help your family in the case that you become ill or are unable to manage your assets. A trust offers a great deal of specificity, and you can even choose who should manage the assets through the trust in this situation.

  • Greater flexibility

With revocable trusts, you can change the terms of the agreement at any time. The circumstances of life can change frequently, and a revocable trust allows you to keep up with these changes and adjust accordingly. For example, you can add new beneficiaries if a new grandchild or loved one comes into your life or if you become involved in a new organization that you would like to contribute to.

If you feel intimidated by the process of setting up a will, you do not need to feel this way in the hands of Palmer Rodak & Associates. We have the experience and insight necessary to ensure that your wishes are carried out according to your wishes.

To learn more about the benefits of setting up a trust, call Palmer Rodak & Associates at (760) 573-2223 or contact us online.