The legal and written pact between the owner of a property and a trustee is called a trust. This document allows a settler to transfer some assets to a trustee to manage them on behalf of their beneficiaries. The objective of a trust is to safeguard assets and estate plans by highlighting some essential points to follow.
Over the past years, many trusts have exhibited common characteristics. For example, trusts include one or more trustees and several named beneficiaries. A trustee is responsible for overseeing and executing the arrangements in a trust. The beneficiaries are entitled to the income or principle from the trust in the present or the future.
Trusts have traditionally been used by the wealthy to conceal and distribute their wealth to their offspring. 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. Revocable trusts can be changed. They are not strict in their guidelines and are bendable. No one can make changes to an irrevocable trust. No changes can be made to the arrangement outlined in an irrevocable trust. Categories of trusts are living trust, life insurance, limited term, privacy trust and testamentary trusts.
Living trusts are used a lot, and they take effect during a grantor’s life. 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 trusts offer a good measure in regards to asset security and estate planning. They help to shield an estate from high tax. This is achieved by keeping an individual’s life insurance policy free from the estate tax, making the entire amount of the life insurance policy available to the beneficiaries.
Trustees of a limited term trust have authority over a grantor’s assets only for a period of 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 meant to provide financial secrecy. A successful privacy trust hides the ownership of bank and brokerage accounts, rental properties, family home and any interest in other entities by a grantor.
A testamentary trust does not take effect until a settler dies. Usually, they are part of a deceased settler’s will. Their advantage is that they guarantee an inheritance for children from another marriage or a surviving spouse. Also, they limit access to benefits of a grantor’s wealth to persons under an age specified by the grantor.