A trust is a specific designated fund that people will open up to help them organize their wealth and spending needs. A grantor is the creator of the trust who devises all the rules for the trust according to legal guidelines. There are revocable trusts and irrevocable trusts. Irrevocable trusts cannot be altered after the trust is created, whereas a revocable trust can be altered or even revoked by the grantor.
Trusts generally begin with a grantor deciding that they want to place certain assets in a trust for the benefit of another person, who is the beneficiary. A trustee is then designated to manage the trust. This can be the same person as the grantor, but it is often a different person. Then, wealth is moved into the trust in the form of gifts. These are invested based on the rules of the trusts that were set up.
Trusts have recipients and beneficiaries who are also designated to reap the rewards of the trust. The grantor can also set rules for how the beneficiaries can access the trust, such as at what age, how often, and how much money they can withdraw at one time.
Are There Different Kinds of Trusts?
Yes. Some common types of trusts include bypass trusts and special needs trusts. The bypass trust can be referred to as a family trust or marital trust and it is intended to help married people manage the expense of estate tax in the most efficient way. Special needs trusts are set up for people who can’t earn their own living because of disabilities or other illness. Spendthrift trusts are for people whom the grantor thinks might not be able to manage their money and will quickly spend it. Life insurance trusts help the beneficiaries avoid the estate taxes a life insurance policy would require. A living trust is created so that in the case of the grantor’s death, the assets can pass quickly to beneficiaries without the lengthy and expensive process of probate.
How Can I Create a Trust?
There are several steps to creating a trust that you will need to take:
- Decide what you are hoping the trust will accomplish
- Select the type of trust that will accomplish your financial goals
- Designate a trustee
- Select beneficiaries
- Discuss the guidelines of the trust with a lawyer and be sure it can manage and transfer assets according to your needs
- Have the lawyer draw up the trust in a binding legal document
If you need to amend your trust because of a change in your wealth or who you would like as a beneficiary, consult your lawyer.
Do I Need a Lawyer?
Yes. Estate law is a complicated area of law, and you will likely need. Only an estate lawyer can safeguard your family and your assets.