16 Apr

Trusts — An Often-misunderstood Estate-planning Tool

Does a trust suggest an image of “trust fund babies” living a life of leisure on their inherited money? The truth is, trusts aren’t useful only for the wealthy. When set up properly, trusts can provide benefits to even those with modest means.

What’s a trust?

A trust is an arrangement with three main parties:

  1. A trustee (usually a third party) who holds the assets in the trust.
  2. A grantor, who sets up the trust and provides the assets.
  3. A beneficiary, (or beneficiaries), the person or persons who will ultimately benefit from the trust.

There are two major types. An irrevocable trust, as the name implies, cannot be changed once it is set up. A revocable trust can be changed at any time during the grantor’s lifetime. Usually, a revocable trust becomes irrevocable when the grantor dies.

Who Can Benefit from a Trust?

Depending on how they’re set up, trusts can help:

  • Avoid probate. Probate is the legal process of proving a will, which can be lengthy and expensive. If you leave property to someone in a will, it must go through probate. Property left in a trust usually does not go through probate, so the beneficiary may receive the assets more quickly at lower cost to the estate.
  • Ensure privacy. Probate is public record. A trust is generally private.
  • Provide control. A trust can allow you to determine how and when assets are distributed to the beneficiary. For example, rather than leave a lump sum to your beneficiary, a trust can allow you to parcel out the money over time, or when a milestone — such as completing a college education — is reached.
  • Protect your family. For example, if you’ve been married more than once and have children from a previous marriage, a qualified terminable interest property (QTIP) trust can provide income to your surviving spouse and pass the remaining assets onto other beneficiaries upon the second spouse’s death. In another example, a special needs trust can help ensure that a child with special needs has access to funds to enhance his or her quality of life, without losing any government benefits to which he or she may be entitled.
  • Minimize estate taxes. Certain irrevocable trusts may remove assets from your estate, potentially saving on estate taxes.
  • Fulfill charitable goals. For example, a charitable remainder trust can be constructed to provide income to you during your lifetime or a period you specify, with any remaining assets going to the charity upon your death.

Put Your Trust in Us

The trust and estate planning professionals at Navigator Credit Union can work with you and your attorney to determine if a trust would be beneficial in your situation. Give us a call at (228) 474-3427 to learn more.