When it comes to deciding who will carry on their legacy, many people create a will to have their estate assets distributed rightfully after their passing. However, they don’t know another asset distribution aspect that may offer them and their families unique benefits: a trust fund.
A trust fund is a legal contract drawn up by an attorney who names a trustee to manage your assets per your aspirations during your lifetime and after your death. It is essentially nothing more than a wagon for the transfer of assets. Trust funds can, among other things, remove assets from one’s estate, provide lifetime income to your beneficiaries, and keep your assets safe and in the right hands. Trust funds can also help achieve specific goals rather than simply depositing the deceased’s money into the accounts of the heirs.
Suppose you have young children or would prefer that your beneficiaries avoid the hassle of going to court in the event of your incapacity or death. In that case, a trust fund may be everything you need. If that’s not convincing enough, here are some reasons why you can benefit from setting up a trust fund:
1. Ensuring The Protection of Your Assets
One valid reason to establish a trust is to protect assets. To understand how a trust fund works, you must know that three parties are involved: the trustee, the grantor, and the beneficiary. The trustee is the organization or person holding and managing the assets. The grantor is the person who creates the trust fund and contributes assets to it. Finally, your beneficiary is the person you select to get the fund’s contents.
Having a trust in place allows beneficiaries to access assets more quickly while making it much harder for third parties to intervene. There is also the added benefit of better control. For example, you can define what the funds are to be used for and control the amount dispersed to ensure more cautious budgeting on the beneficiary’s part.
2. Trust Funds Are Private
Trusts provide confidentiality because they do not go through probate, so there are usually no public records. Unfortunately, it means that your assets and the people you leave them with are kept a secret. In some jurisdictions, you may need to register a trust if it includes securities or real estate, which will create a public record. However, there may be a way to overcome these challenges.
You can keep your privacy by putting assets in the name of a partnership rather than a trustee (known as a nominee partnership). The association, in this case, governs the assets in the trust, but the grantor retains the ownership.
3. Trusts Provide Flexibility
If you establish a revocable trust, you can bargain the conditions of the agreement at any time by signing an amendment. That enables you to be flexible and adaptable in changing situations in life. Maybe you’ll engage in a charitable cause about which you’re genuinely enthusiastic later. Perhaps you have a newborn grandchild you’d like to include in the trust. If this is the case, you can add them as prospective beneficiaries in your trust fund at that time.
4. Trust Funds Can Help You Avoid Family Problems
Trust funds can help decrease the potential conflict between heirs during an estate settlement. This is because they are infinitely configurable, allowing grantors to personalize the document to their specific needs. For example, a grantor can specify what monetary amounts and items should be left to each beneficiary.
That is especially useful when dividing items that heirs or entities with emotional significance may contest. For example, a grantor may choose to leave a painting to a child who praised it, a chest of drawers to a relative who is a collector, or a car to a grandchild who loved it. With this, heirs have little reason to argue about “who gets what.”
5. Providing Care for Families with Special Needs or Illnesses
A trust can be used to provide for family members who need medical care or cannot handle their affairs due to infirmity or age. Furthermore, provisions can be made in the trust to safeguard against other family members who may wish to take control of the family assets after the settlor’s death.
6. Create Charitable Trusts
A charitable trust is an excellent way of donating to a charitable organization. A grantor can send assets such as real estate, money, or art to a charitable trust and direct that they be distributed to a particular organization in the future. However, the grantor can proceed to use the property in the meantime. Suppose the resources in the trust are, for example, a favorite painting or a vacation home. They can be appreciated just as much after being placed in a trust as before.
7. Trusts provide Specific Guidelines For The Use of Your Assets
Whether you establish a trust under your Will or a separate trust agreement during your lifecycle, trusts allow you to customize your estate plan. Conditions such as age attainment or parameters defining how the assets will be used can be included. For example, you can specify that the money in a trust should be given to your children or grandchildren only when they reach the age of 18. You could also restrict how much money a beneficiary can receive from the trust each year if they need additional help managing money.
8. You can be able to avoid probate
As mentioned earlier, trusts provide more privacy than Wills because they are not subject to the probate process. Avoiding probate is commonly quoted as a primary reason for constructing a trust fund. It can result in significant savings in time, paperwork, and legal fees. Probate is the process by which a judge defines the validity of your Will and sees if your assets are dispersed accordingly. A trust allows your heirs to avoid this process and access your property and resources more quickly. Furthermore, your family can avoid paying probate fees, which can amount to up to 5% of the worth of your estate.
The probate process is also long and complicated, taking up to a year or even two to complete. During this time, your family will be unable to access their inheritance. However, in some jurisdictions, the courts grant beneficiaries a certain amount of money to cover living expenses while they stand in line for their estate to be distributed.
Setting up a trust fund can allow you to care for the people you care about even when you are gone. After all, no one knows what the future holds. Still, with the help of a trust fund, you can distribute your assets to the deserving and leave a lasting financial legacy. Moreover, if you have several stipulations, real estate, and resources in your name, consult an attorney to see which type of trust fund will fit you best.