Trusts often coincide with estate planning. When planning your own estate, you’re looking out for your hard-earned money, home, and other assets along with determining how to transfer them to the next generation. How your assets are handled should always be up to you, and using a trust allows for your plans to play out in an efficient and legal manner.
At the end of the day, you want your assets to benefit you while you’re alive and pass them on to future generations just as you intend. Without a bit of planning and help from legally binding agreements, the outcome could look far different than you intended.
Defining a Trust and How it Differs From a Will
A living trust is a legal agreement between 3 parties: the grantor, a trustee, and the beneficiary(ies). The grantor initiates the trust and transfers its assets into the trust. The trustee manages the assets and the beneficiary is the final recipient of the assets.
You may be thinking, isn’t that basically how a will works? A will also designates beneficiaries, but it does not go into effect until a person dies. A trust goes into effect upon creation, so unlike a will, a trust can disperse assets before a person passes away. (1)
The efficiencies gained from a trust are an added benefit. All wills go through the court system and can be contested. Everything about the probate process takes time. If contested, it could be years before your loved ones receive what you left behind for them, not to mention the added headaches along the way.
With a trust in place, however, the court is not involved. This means contesting is not an option and the trust will dictate how the action is taken. Removing the probate process brings peace of mind to all involved and reduces stress for those handling your estate once you pass away.
Initiating a Trust
To begin the process, a person or married couple works with an attorney to formalize the trust, and when the legal agreement is documented and signed, assets officially transfer into the trust.
This means new bank accounts are created under the name of the trust; money or financial portfolios transfer into the new accounts. The same goes for tangible assets and property—titles transfer into the name of the trust. Your personal name is removed from the ownership records and replaced with the name of your trust (for example, Johnson Family Trust).
You may choose to act as both the grantor and trustee and self-manage the trust. In this case you’d designate a successor trustee to take over once you’re unable. (2) This allows the trust to easily continue providing for you if you become incapacitated. (3) This is key for single individuals, people without children, and even small business owners.
Should you become ill or severely injured, your trustee or successor trustee can easily step in and manage your accounts while you are still alive. During these unforeseen circumstances, knowing bills will be paid and your accounts and property will be properly tended to can relieve you of added stress.
Types of Trusts and Taxes
Living trusts are either revocable or irrevocable. A revocable trust means you can amend or do away with the trust if you so choose. In a revocable trust, if you chose to name yourself as the grantor and trustee, the assets may remain in your estate when they pass away. This is subject to the fine detailing of your trust.
If the assets in a trust are indeed part of an estate, they may be subject to an estate tax. Because estate taxes vary from state to state and often have thresholds for when the tax is or is not imposed based on the value, it’s important to work with a qualified professional when forming a trust.
On the contrary, an irrevocable trust is set in stone once signed and in place. The grantor essentially hands over power and ownership of the trust to the trustee; the trustee then has a fiduciary duty to manage the assets in the best interest of the beneficiary.
Because assets in the trust are part of a personal estate, the estate does not go to probate or get assessed an estate tax. The assets within the trust easily transfer from the trust to the beneficiary.
Learn More and Partner With a Professional
When it comes to trusts, there are many intricacies. It’s important to partner with a qualified attorney who can walk you through the process and help employ proper tax mitigation strategies.
While forming a trust, many financial decisions must be made. A financial advisor is uniquely suited to provide guidance so you can feel confident in the decision-making process. While the principal benefits of a trust are clear, you likely have questions specific to your unique scenario and goals.
At T.A. Holland & Co., our goal is to be your trusted financial advisor, bringing clarity and direction to your entire financial picture. To learn more about how a trust could benefit you and your loved ones, reach out to us at firstname.lastname@example.org or 617-523-5656 to schedule a complimentary appointment.
About T.A. Holland & Co.
T.A. Holland & Co. was founded in Boston, Massachusetts, in 1920, and serves individuals and businesses throughout the country. We provide cutting-edge financial services with a broad array of solutions to help our clients grow and preserve their wealth. We have seen good and bad economic times. Through it all, T.A. Holland & Co. has thrived by always making the customer our #1 priority. We get to know you and understand your needs so we can provide you with the proper guidance and strategies. Our senior vice president, John Hellmuth, has been at the helm of T.A. Holland’s financial services since 1990, but he doesn’t do this job alone. He is joined by his two children, Lindsay Hellmuth and Thomas Hellmuth. As CERTIFIED FINANCIAL PLANNER® (CFP®) practitioners, our financial services team has the knowledge and experience to help you solve your most pressing financial challenges. To learn more about how we can help you, visit our website and reach out to us at (617) 523-5656 to schedule a complimentary get-acquainted meeting.