Many believe the terms "estate planning" and "trusts" apply only to the affluent. Estate planning and trusts, however, are no longer exclusively for the very wealthy. In fact, millions of Americans are planning their estates with trusts. Why? Because over the past two decades, significant increases in income and the value of real estate and securities have helped increase the value of many individual's estates. This period of wealth building is now transitioning into a period of wealth preservation. Trusts represent a popular and effective way to protect assets and transfer them to the next generation.
A trust is a legal relationship whereby you transfer property to a trustee for the benefit of one or more beneficiaries. The trust document, drafted by your attorney, sets forth your desires as to the type of trust, its duration, the powers and duties given to the trustee, and the time and manner of the distribution of the trust assets; he or she is legally bound to manage, invest, and disburse those assets in the manner you outline in the trust document. This enables you to maintain a great deal of control over your assets today and in the future.
There's no such thing as a standard trust. Instead, they come in many types. Each trust is customized in one form or another to meet family financial needs and goals.
For example, a "testamentary" trust is usually created by your will and becomes effective upon your death. A "living" trust, as the name suggests, is created during your lifetime. It may be either "revocable" (may be altered, amended, or even terminated) or "irrevocable" (usually can't be changed or terminated).
In addition, a trust may be created for any number of beneficiaries, including charitable organizations. Trusts also can provide for almost any method of distribution you desire. For example, you could choose to provide that trust income be paid to you or a beneficiary for the duration of your lives. Any remaining trust assets and principal could be distributed to another beneficiary or beneficiaries.
What a Trust Can Do For You
Transferring assets to a trust may provide these benefits:
Holding vehicle for life insurance proceeds to be collected upon your death.
Professional management of investments such as stocks, bonds, mutual funds, separately managed accounts, and real estate-if a professional trustee is appointed.
Means of providing for your child's education or for the care of a handicapped dependent.
Supplement to your retirement or pension plans.
Protection against mismanagement or non-management of your assets in the event you become ill or incapacitated.
Tax-savings vehicle, especially regarding estate taxes.
In sum, a trust is an extremely flexible financial planning tool and, as such, can be set up to meet your individual objectives, whatever they may be. IBI