What You Should Know About Trusts


For people with large estates, it is not uncommon to worry about how your wealth will be handled after death, or even how assets will be dealt with during your life. While several financial tools can help to protect your estate, one tool typically stands out above all others: a trust. There are several reasons that a trust is a good idea under the right situations, but many people don’t understand these vital financial tools. However, there are at least five things you should know before investing in them.

1. Variety

Trusts are not cut-and-dry investment tools. These fiscal entities are structured for several varying and specific reasons. For instance, you can have a trust for your property or your wealth, and you can have one for yourself or your family. Your needs dictate the type of trust you use, but to understand which is right for you, it is best to consult with professionals who have experience with them.

2. Terms

There are two terms that are often used to refer to trusts: (1) revocable and (2) irrevocable. Revocable trusts are common and stand to benefit the grantor, or creator of the trust, during their life, and are then transferred to the listed beneficiary, at the time of the grantor’s death. Also, these trusts can be changed throughout the grantor’s life.

Alternatively, an irrevocable trust cannot be changed once they are funded. These funds are typically more complicated and are often structured for specific needs, such as generation-skipping, credit shelters, special needs or asset protection.

3. Protection for Assets

If you will be entering a nursing home or are in a profession prone to lawsuits, then an irrevocable trust is an excellent means for protecting your assets. When an asset is transferred into an irrevocable trust, you essentially relinquish ownership of that asset to the trust, which means it is protected against creditors and is also placed into a tax-shelter situation.

4. Probate

One of the leading reasons people use trusts is to simplify the probate process. By putting property and other assets into trusts with designated beneficiaries, transfers after death are easier. In fact, most revocable trusts are designed to avoid the headaches of probate.

5. Long-Term Expense

While trusts are useful financial tools, they can also be expensive. As these financial entities require careful management and additional filings for taxes, investors often sacrifice the advantage of long-term capital gains.

Trusts are sophisticated financial tools. While they are useful in certain situations, it can be challenging to determine your benefit without thorough research, explanation, and understanding. Therefore, if you are considering a trust, then contact a trust lawyer and discuss your options.