While it's important for everyone to have a will, adding a trust fund to your estate planning can give you more control of how your assets are distributed after you pass. A trust fund is an agreement in which at least one other person, called a trustee, accepts responsibility for handling assets you have, and distributes them to your designated beneficiaries. The advantages of using a trust relate to distribution complexity, probate, taxes, control. and the diversity of the assets you can include.
One of the major benefits of a trust is that you maintain some control over your assets. Beneficiaries of the trust receive the assets in the trust only according to your predefined guidelines, particularly if your trust is irrevocable and cannot be modified. In the same way, any trustees you have for the trust are expected to act in the best interests of the beneficiary, and you direct what you want the trustees to do when you set up the trust. You can put any restrictions you want on the distribution of the funds. For example, you can require a beneficiary to be of a certain age, before they can receive the funds, or require him to graduate college or get married first.
Simplification and Probate
Most assets associated with trusts can avoid the probate process, with those for after-death trust funds being a notable exception. This means that it is much easier to disperse the assets in the trust to the appropriate beneficiaries. It also means that beneficiaries may receive their assets faster, as property that goes through probate can take a year or more to be transferred to a new owner. Probate also can be expensive. If you create a trust that doesn't need to go through probate, you may avoid associated fees.
Creation of a trust does not always shield assets from income tax. However, because assets in a trust usually are kept out of your estate, you can pay less in estate taxes. Additionally, the Internal Revenue Service treats trusts similar to individuals, in that trusts are eligible for deductions and credits. This can help reduce your tax liability.
You can put many different types of property in a trust, including certificates of deposit, stocks and even real estate. This diversity means that trusts are accessible to people from all income levels. It also means the trust as a whole, similar to any investment portfolio, is somewhat stable and protected from loss. Depending on what you put in the trust, the assets may increase in value before the trustees distribute them. A diverse trust also provides opportunities for the beneficiary to learn many different aspects of financial investing.
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