Many people make the mistake of thinking that trusts are only for the very wealthy. As a result, they may never learn the many benefits associated with setting up trusts to protect wealth and assets during their lifetime and pass them along to loved ones after death.
In truth, there are many different types of trusts and they can be set up in a number of ways based on your wishes. What are trusts? What benefits can you gain from using trusts in addition to a last will and testament?
What Are Trusts?
A trust is a legal arrangement designed to protect wealth and assets during your lifetime and pass them along to beneficiaries after your death, or at a pre-appointed time of your choosing. There are three types of people involved in a trust:
The way a trust works is that you essentially transfer ownership of your assets to the trust. During your lifetime, you may retain use of these items, but the trust essentially owns them and is holding them until the appointed time when they will be passed along to their new owners (your named beneficiaries).
The bulk of the trust is nothing more than a set of instructions for how the trust and its assets are to be managed. These instructions include how the assets are to be used in the event you become incapacitated or have passed away. This allows you the ability to continue to use property and assets throughout your life, including periods of incapacity or when need care down the line. More importantly, trusts allow you to ensure that wealth and assets go directly to your chosen beneficiaries in the way you want it to be distributed.
Setting up trusts can be complicated, which is why it’s so important to discuss your goals and wishes with a qualified estate planning attorney like the experts at Curtis Law Firm. This will ensure that your trust is structured according to your specific needs and unique situation.
There are a wide variety of trusts to explore, but the two main categories are revocable and irrevocable trusts. Revocable trusts protect assets while the Settlor retains control. The main benefit of the revocable trust is that it allows for changes during the lifetime of the Settlor and can be dissolved if the Settlor chooses. There is no need to register the trust or for the trust to obtain its own personal tax ID. As far as the IRS is concerned, the trust and the Settlor are the same entity. But, that means items held in trust are still subject to personal taxation, just as if they weren’t in the trust.
An irrevocable trust, on the other hand, is non-modifiable (no changes can be made), must be registered, and must obtain its own individual tax ID. Since the trust is considered a separate legal entity from the Settlor, the Settlor no longer pays personal tax on items held in the trust. The trust will pay taxes on any capital gains.
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