What Is A Trust?
A trust is a legal and written agreement between a settler (person creating the trust) and the trustee. The role of a trustee in a trust is to manage a settler’s assets on behalf of the settler’s heirs. In a trust, there are rules and regulations that are necessary for the security of a grantor’s assets and estate plan.
Over the past years, many trusts have exhibited common characteristics. For example, trusts include one or more trustees and several named beneficiaries. The provisions of a trust are obligations of a trustee, and he/she is accountable for their execution. The beneficiaries are entitled to the income or principle from the trust in the present or the future.
The rich have been using trusts to keep their wealth a secret and to pass it on to their children. The increasing awareness of the benefits of trusts has seen more people adopt their use regardless of their financial class.
There are two basic forms of trusts; revocable and irrevocable. Trusts that are revocable can be altered. They are flexible and have a lesser degree of asset protection. No one can make changes to an irrevocable trust. The guidelines in an irrevocable trust are permanent. The different types of trusts available include living trust, life insurance, limited term, privacy trust and testamentary trusts.
The living trust is the most common type of trust utilized and rolls out within the lifetime of a settler. Living trusts aid in a reduction in estate taxation, probate evasion and the maintenance of asset management when a settler becomes undermined or after his/her death.
Life Insurance trust has the most favorable schemes when it comes to estate planning and asset protection. Their benefit is that they protect an estate from massive tax. They exclude the grantor’s life insurance policy or policies from the estate tax, which means the heirs get the entire amount of the life insurance policy.
A limited term trust entitles a trustee or trustees partially in respect to time. When a limited term trust concludes, a grantor can reclaim all the assets and property listed in a trust. This type of trust allows the assets of a trust to be protected, but accessible to a settler if he wants them again.
A privacy trust is designed to achieve financial privacy. When drawn well, they successfully conceal the ownership of bank and brokerage accounts, rental properties, family home and any interest in other entities.
A testamentary trust does not take effect until a settler dies. They mostly manifest in the content of a deceased’s will. An importance of testamentary trust is to safeguard the interests of children from another marriage or a surviving spouse. A settlor determines the age with which his benefits can be released to heirs who are not yet of age at the time of his/her death.