Setting up Trusts

If the thought of managing your finances or assets has bogged you down, setting up trusts can be one great option. Setting up trusts according to the value of your estate and your estate-planning goals means creating a new legal entity to hold assets for the beneficiaries of the trust. All you need to do is to prepare a trust agreement proclaiming 

 

  • The goal of the trust
  • The names of its beneficiary or beneficiaries
  • The name of its trustee and substitute trustee
  • The rights and responsibilities of the trustee
  • Your plans regarding how you want the trustee to invest the trust assets
  • When and under what circumstances you want the trustee to disburse income from the trust to the beneficiaries of the trust
  • When should the trustee give full control of the trust assets to its beneficiaries?



What is a living trust?

Living trusts are created during the lifetime of the trustor. You don't need to go through probate court to establish a living trust. If you want to keep the transfer of your property confidential, it is a good choice because the trust document is not made public. Plus, the property which is subject to the trust can be professionally managed since the trustor nominates a trustee in the trust documents.



When can I establish a living trust?

If you have a high income and a huge property, you can establish a trust for your children or other beneficiaries. You can thus have their income taxed according to their income level, not yours. If the beneficiary is under 14, the income earned by a trust may be taxed at the parents' tax rate.



What can be the tax implications of a living trust?


 

The transfer of property to a living trust may be subject to gift tax. Get a professional tax specialist to carefully analyze the tax implications of a living trust. Note that a trust may either be irrevocable or revocable.



What is an irrevocable living trust?


 

An irrevocable living trust transfers property to a trustee for management. The trust may not be changed or terminated after the trust is established.



What is a revocable living trust?


Here, the trustor can modify or terminate the trust during his lifetime. The revocable living trust is often a faster and easier way to transfer assets than using a will and going through probate.



What are testamentary trusts?

A testamentary trust is established upon the death of the person who wrote the will and can be used to serve several purposes like a child's education.

 

Are there other types of trusts?


Yes, there is the life insurance trust which can be established to receive proceeds which otherwise would be paid out under a life insurance policy. It can be used for excluding insurance proceeds from taxation in the deceased's probate estate. Charitable trust can be another option. This is to provide financial benefit to a charity or the general public. There are some tax advantages for establishing a charitable trust but it involves certain legal issues too.