Who Can Benefit From A Trust?

 

What is a trust?

A trust is a legal entity that can “own” assets. The trust document reads like a will, and similarly includes instructions for the trustee to direct the Grantor’s, or owner’s, final affairs. It also carries out the dispersal of assets to the beneficiaries.

There are different kinds of trusts:

  1. Living trusts are created while the owner is alive.

  2. Testamentary trusts are created after the owner has passed.

Living and Testamentary trusts can be revocable: alterable, or irrevocable: fixed.

 

Today, many estate plans utilize a trust instead of a will in order to avoid probate court at the time of death or if an individual is declared incompetent. A benefit of a trust is its flexibility. In the case of a revocable trust, when the grantor or creator is alive and competent, the trust document can be changed by adding assets, removing assets, or even by cancelling the trust.

 

Who is involved with a trust?

The grantor, settlor, trustor, creator or trust maker, is the person who creates the trust. Married couples who set up one trust together are co-grantors of their trust. Only the grantor(s) can make changes to his or her trust. The trustee is an individual, business, or corporate organization which is given control, or powers of administration, of the trust’s property. Its legal obligation is to administer its powers based solely for the purposes specified. They can also manage the trust’s assets. A successor trustee is named to step in and manage the trust when the trustee is no longer able to continue. This commonly happens in cases of incapacitation or death. Typically, several successor trustees are named in the event one or more cannot act. The beneficiaries are the persons or organizations designated to receive trust assets.

 

Who would benefit from creating a trust?

There are several scenarios that make sense to create a Trust. Certainly a trust can be created to help mitigate estate taxes. A few other scenarios include, individuals who have no family and need an independent trust company to distribute their estate. Also married individuals who have children that are not ready to manage $500,000 or $1mm and finally blended family from second or third marriages are good candidates for Trusts to make sure the assets are protected the way the grantor requests.

 

Here are a couple of details:

CASE #1 The Married couple with children

Suppose a married couple have two children. One child is financially responsible but the other has credit issues and cannot balance a checkbook. The husband and wife may not want to transfer $1mm directly to the un-responsible child. So they can create a trust account and have the Trustee manage the account with the child being the beneficiary. The trust could have provisions for the Trustee to provide Income from the trust or distributions for Health and Education, the Grantor can set up the Trust to provide resources to the Beneficiary however they would like. The Grantor can choose an age that the trust is distributed or distributed over a series of ages, like 25% at age 35, 25% at age 40 and so on.

 

CASE #2 The Blended Family

In this case, suppose Husband and Wife are married but each with children from a previous marriage. Each spouse may want to make sure “their” assets pass to their own children. In that case each could create a Trust account. The terms could say that upon their passing the Trust is created and the income could be used to support the surviving spouse. Upon the 2nd spouse passing, the proceeds of the Trust would be distributed to their own children. This is a very typical use of a Trust account. which a Trustee makes sure the surviving spouse is taken care of but ultimately the children receive the proceeds. As you can see a Trust account can be a useful tool in several cases. It would be best to sit down and discuss your own unique estate planning situation.

HFG Trust is a State of Washington chartered Trust company with over $500 million in assets under management. We at HFG Trust will continue to provide wealth and portfolio management; and for those clients who require trust services, we can satisfy that need as well. Please contact us if you would like more information or want to consider establishing a trust for your estate planning needs.

■ T. Michael Tallman, CFP® CTFA

Legal Information and Disclosures

This memorandum expresses the views of the author as of the date indicated and such views are subject to change without notice. HFG Trust has no duty or obligation to update the information contained herein. Further, HFG Trust makes no representation, and it should not be assumed that past investment performance is an indication of future results. Moreover, wherever there is potential profit there is the possibility of loss. This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or solicit and securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. HFG Trust believes that the sources from which such information has be obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. This memorandum, included the information contained herein, may not be coped, reproduced, republished, or posted in any form without the prior written consent of HFG Trust.

 

 

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