Most people have heard the term “trust fund baby” used in reference to someone whose late wealthy relative endowed them with glorious sums of money. Though it is certainly true that trust fund babies exist, trusts are not tools that are exclusive to the affluent. The benefits that trusts offer are just as available to an average earner from any walk of life as they are to the uber-rich.
The Basics of a Trust
At its core, a trust is a legal arrangement consisting of three parties, who may or may not be people. These are as follows:
- The settlor or grantor (also known as the trustor)
- The trustee
- The beneficiary/beneficiaries
The trustor is who initiates the trust by transferring the title of certain property into a trust. At that point, the property is no longer owned by the trustor. Instead, a trustee takes ownership of the property, but not for their own benefit: The beneficiary of the trust receives the full financial benefit of its assets.
Trusts can be revocable or irrevocable. The former can be terminated or changed at any time, but the latter is considered unchangeable unless under very limited circumstances.
Benefits of a Trust
Trusts come with a wide range of benefits that make it worthwhile to at least explore for anyone with even the slightest amount of assets. These include the following:
When someone passes away, the probate court often gets involved to ensure the fair settling of their estate. Even if a will is involved, probate will be necessary to validate it. For heirs, that means a potentially long waiting period before being able to access the assets left to them by their loved ones.
When assets are transferred into a trust before death, however, they do not go through probate because they are no longer the property of the deceased. The result is instant access to the trust funds assets for the beneficiary.
Protection From Various Legal Proceedings
A trust can protect your assets from future court proceedings and actions initiated by creditors or lawsuit plaintiffs, as — once again — the assets these parties would look to seize no longer belong to the trustor once they have been transferred into the trust.
Rich individuals aren’t the only ones who prefer privacy in relation to their financial affairs, though they are the ones who overwhelmingly benefit from the privacy protection that comes with a trust.
If you want to keep the details of your finances secret even upon your passing, consider a trust, as it will not be a matter of public record. Wills, on the other hand, must go through probate, which makes them open to public access.
Trusts are an easy form of protection for your assets and the future of your loved ones. They are easy to set up and easy to administer. Furthermore, trusts are recognized in every state, so if you decide to leave a state like Ohio or Kentucky, you won’t have to worry about whether your trust is recognized in other jurisdictions.
For those with larger estates (or estates that are larger than they realize), there are significant tax benefits that may be available through trusts that can markedly reduce one’s tax liability.
Keep in mind that when calculating the value of your estate, you not only include assets such as bank accounts and property values, but you also include insurance policies, which can bump up your estate’s worth more than you previously believed it to be.
Meet With a Trust Attorney to Learn More
If you live in Louisville, Cincinnati, or anywhere in between and are ready to explore the many estate planning options that trusts offer, give Shaw & Nelson a call, and let’s discuss how trusts can help you protect the ones you love.