For most people, setting up a trust is a confusing and intimidating process. Although there are many variables to establishing a trust; there are just as many benefits. Several types of trusts exist including: Living Trusts, Testamentary Trusts, Revocable Trusts and Irrevocable Trusts.
The primary purpose of a trust is to place your assets in a safe container. Trusts are exceptionally flexible and allow for many variables. Nearly any estate planning goal can be achieved with the right type of trust. However, not all trusts are created equal so it is important to consult with a qualified estate planning attorney.
While there several different trusts and endless possibilities to creating them, there are four basic components which apply to all trusts. In order to have a trust, someone must establish it. This person is referred to as the "Grantor". Depending on your location, the person might also be referred to as the "Trustor," "Settlor," or "Donor."
The second component of a trust is the "Trustee." The Trustee is responsible for administering the trusts and the assets placed within it. Assets can consist of money, real estate, personal belongings, etc. This doesn't mean the Trustee actually holds your belongings. They do not have access to your bank account while you are still alive; unless you grant them permission.
The third component consists of the "principal" of trust. Also known as the "corpus" of the trust; the principal can fluctuate on a daily basis. The Trustee can access money held in the trust fund and use it for personal expenses or investing. Any interest earnings or dividends earned can be placed into the trust fund for future investments.
The final component of any trust is to designate beneficiaries whom you wish to receive your assets and personal belongings in the event of your death. Monetary gifts of up to $10,000 per person, per year, can be given to loved ones while you are alive. This money is tax-free when established through the appropriate trust.
Most trusts allow estates to avoid probate and distribute assets to heirs in an expedient manner. However, Testamentary Trusts must be validated through probate court. Testamentary trusts are established under a Last Will and Testament and do not become effective until after death.
Many estate planning lawyers offer complimentary consultations. Experts recommend consulting with three to four attorneys to determine which is best suited for your personality and offers the services you need.
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