Spoiler alert: you don’t have to be a billionaire to need one
There are several different types of trust funds, but in essence, a trust is an agreement that specifies exactly how you’d like your assets distributed and to whom. There are numerous benefits to having a trust and it’s different than a will in various ways. Do you understand exactly what a trust is? And how can you tell if you need one or not? Take a look:
What is a trust?
A fiduciary agreement, a trust is a legal document that allows you to lay out the details of how you’d like to bequeath your assets and to whom. And while it sounds much like a will, it’s different because a trust is immediately effective and can be put into action according to your wishes during your life, when you die, or afterwards. A will is enacted only after the governing party passes away. Trusts provide a myriad of benefits, including:
• Bypassing probate: A trust doesn’t have to go through the long, drawn out court process of probate which most wills normally have to. This means your beneficiaries don’t have to wait to receive what you’ve left to them. And because you’re avoiding court proceedings, your recipients won’t be subject to court fees and taxes.
• Privacy: Unlike a will, a trust is not a public document and therefore cannot be contested or viewed by unauthorized parties.
Types of trusts
There are many different types of trusts and some are more complicated and costly than others to set up. But in general, there are three basic types that are the most common:
• Revocable trust
A revocable trust is set up during your lifetime and can be changed at anytime or revoked completely. It is often called a living trust because, when setting the account up, you transfer ownership of the property or assets to the trust, name yourself the trustee, and are able to remove any of the assets from the trust during your lifetime. The greatest benefit of this type of trust, besides the obvious fact that you can change your mind at any time, is that it is not subject to probate.
• Irrevocable trust
An irrevocable trust is one that you cannot change or modify once it’s created. When you place property or assets into it, or you name beneficiaries and detail how to distribute the assets, you cannot alter it in any way.
• Irrevocable life Insurance trust
Setting up an irrevocable life insurance trust enables you to remove your life insurance from your taxable estate. This has numerous benefits for your heirs because it can no longer be taxed and can provide beneficiaries with tax-free income that can be used to help pay estate fees after you have passed away.
Who needs a trust?
Having a trust in lieu of a will can be beneficial for many people depending on the amount of assets they have acquired, whether they own property in multiple states (or internationally), and how many heirs there are to the account. The key for most people is avoiding the hassles and costs associated with probate and taxes as well as ensuring that their family members don’t have to worry about who gets what. Another point to consider is that a trust is not only for those who have amassed a large fortune; it’s truly all about bequeathing your belongings in the simplest and smoothest way.
When it comes to securing your assets for loved ones, a trust is a viable option that many people use. Make sure that you do your homework before making a decision and, if you’re in need of life insurance, give us a call at 305-648-7070 and we can guide you on the best solutions to fit your needs and goals.