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Frequently Asked Questions About Trusts as an Estate Planning Tool

Frequently Asked Questions About Trusts as an Estate Planning Tool

In estate planning, trusts are used to transfer or manage property during the property owner's lifetime or after death. This article answers list of frequently asked questions about using trusts as an estate planning tool.

Who can be named in a trust?

A beneficiary, or person named in a trust, is the person who receives money from a trust. Additionally, you'll name a trustee, who is the person or organization responsible for managing the trust's assets. Anyone can be named in a trust, including family members, banks or legal organizations to help manage assets.

Why are trusts established?

Trusts are established for a number of reasons. Primarily, a trust will help manage a person's assets while alive and after death. This is beneficial if the grantor or beneficiaries are not equipped to manage assets. For example, a trust can be used to help care for underage children, older family members and disabled or incompetent people.

Trusts are also created to:

  • Equitably divide property among people
  • Minimize the amount an estate pays in taxes
  • Financially support a charity

What are the benefits of a trust?

A trust can help manage a person's assets while alive and after death.

Trusts can help control how one's assets are distributed.

A trust keeps family assets and finances private.

Trusts protect assets for the trust's beneficiaries. A trust's assets are safe from creditors. Trusts cannot be used to pay off lawsuits against the beneficiary. Nor can a spouse obtain a portion of the assets in a trust if divorce occurs.

Establishing a trust will also help one avoid probate. Probate is the legal process that oversees the transferring of assets and the paying-off of debts after one's death.

Lastly, trusts can provide significant savings. This includes a savings in capital gains taxes. One could also significantly reduce or even avoid the payment of death taxes.

What happens to assets in a trust after one dies?

Assets automatically go to beneficiaries after you die. As a result, one avoids probate and courts.

What happens if I don't establish a trust?

If you don't establish a trust or create any other legal document, such as a will, to distribute your assets after death, the state you live in will get jurisdiction over your assets. As a result, your assets may not go to whom you want.

How does one establish a trust?

Establishing a trust involves creating a legal document that details how you would like your estate managed and distributed after death.

The trust must include a list of beneficiaries and name a person to manage your assets. You can name yourself to manage your assets while alive. If you do so, name a second person to manage the trust if you become unable to do so or die.

Hiring a wills lawyer will ensure all aspects of your trust are in order. The attorney will know your state's laws regarding the establishment of trusts. They could also help you create an estate planning checklist to make sure you account for all assets.