Trust refers to a vault which holds valuable assets, along with a person's Last Will and Testament. People use trusts to transfer inheritance assets upon their death. When a trust is used, inheritance assets do not have to pass through probate and generally are exempt from taxation.
Many people believe establishing a trust is complicated. While this can be true for exceptionally wealthy people, many types of trusts exist which are simple to establish. Some of the most common include living, revocable, irrevocable, testamentary, and irrevocable life insurance trusts.
The easiest way to determine which type of trust is appropriate for your needs is to consult with a professional estate planner. Many banks and credit unions offer estate planning services at discounted rates to their customers. Most provide complimentary consultations to familiarize customers with available services.
The nice thing about trusts is they can be arranged to suit your specific needs. Although each type of trust is unique, all are comprised of four basic elements.
Element one involves the Grantor; the person who establishes the trust.
Element two involves the Trustee; the person responsible for managing the trust. This is usually the estate planner, a probate lawyer, or the Grantor. Ownership of everything owned by the Grantor is transferred to the Trustee.
Placing assets into a trust is a matter of recording details of owned property. This can include real estate, financial holdings, motor vehicles, jewelry, antiques and personal belongings. The Grantor retains ownership rights until death.
Element three is the Principal of trust; a specific amount of money set aside to generate income for beneficiaries. Trustees can access Principal funds to cover estate management expenses or to capitalize on investment opportunities. Earned interest or dividends are returned to the trust and can be used for future investments.
Element four involves beneficiaries; the people who will receive your belongings when you die. Most Grantors leave assets to their spouse and children. However, you can give your belongings to whomever you choose.
If you are intentionally disinheriting a direct lineage relative, it is best to include a disinheritance clause in your last will and testament. The clause shows that you knew the person was alive and you intentionally wrote them out of your will. If you do not include a statement, the disinherited heir can contest the will, claiming you thought they were dead or missing.
One of the main benefits of establishing trusts are they keep estates out of probate. The exception to this rule is testamentary trusts which must be validated through the probate court. Probate is the process used to validate the Will and settle outstanding debts. Probate is notorious for dragging on for months.
The biggest drawback to probate is your estate is responsible for paying creditors, and paying regular expenses associated with real estate holdings; i.e. home loan payments, property taxes, insurance and overall maintenance. If you don't have enough money set aside to cover these expenses, a judge can order everything sold to pay off debt. By the time probate settles nothing is left for your heirs.
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Published on October 24, 2009 at 02:34 AM | Comments: 1
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