Why You Should Set Up A Trust Fund
Even though most of us know that time passes quickly, we still put off thinking about what will happen to our money, or our treasured belongings, after we pass away. Establishing a trust can help take some of the anxiety and worry out of estate planning while allowing you to be specific about who gets what and when.
What Exactly Is A Trust Fund?
Simply put, a trust fund is a legally binding account that places your money and assets into a trust. The trustee manages the trust account on behalf of the grantor; when the grantor passes, the trustee handles disbursement to the grantees.
Although trusts are often used by the wealthy to pass along significant assets to their heirs, anyone–regardless of their amount of wealth–can establish one. Both a trust and a will outline how you would like your affairs managed after your death, but a will is required to go through probate court, which could take longer to process.
How Is A Trust Fund Established?
A grantor can meet with an estate planning lawyer to establish a trust that best fits the grantor’s needs. The grantor can list each specific asset and the beneficiary of that asset, whether it’s something as large as a house or as small as an item of jewelry; financial investments, including bank accounts, can also be included in the trust.
Finalized trust documents must be signed by a notary, after which your lawyer will file your deed of trust if required by the state in which you reside. You’ll then open the trust fund account in the name of the trust, and fund it by transferring assets into the trust. You must register the trust with the Internal Revenue Service (IRS) and receive a tax ID number for it, which you’ll need when filing your tax returns. Completing the trust fund process can take anywhere from a few weeks to several months, depending upon the scope of the fund.
What Are The Benefits Of A Trust Fund?
• Management Of Financial Affairs
Trusts aren’t only for outlining how you would like assets managed after your death; you can use trusts to manage affairs while you’re alive. For example, educational and special needs trusts can be established and used while you’re living.
• Avoids Probate
In general, a trust avoids probate court, which can draw out the process of distributing assets. Because probate court is public, people can follow a probate case as it’s presented in the court system; if you prefer to keep information about your assets and their distribution private, establishing a trust fund might be the better choice.
• Control And Flexibility
With a trust, you establish the distribution of your assets as you see fit. In addition, should your life circumstances change or if you experience a major life event that impacts your assets or your choice of grantees, you can usually amend a trust.
What Are The Disadvantages Of A Trust Fund?
• Doesn’t Necessarily Include Everything
Some things, such as a joint account, might not fit into a trust that you alone are establishing; you most likely would need to create a joint trust with the person on the joint account. You might also need to have a will drawn up to cover any assets not covered by the trust.
• Can Be Costly
Setting up a trust requires a professional such as an estate attorney. You’ll be paying for the time and expertise needed to oversee and process the trust from start to finish.
• Questionable Tax Advantages
If you’re hoping to use a trust to save money come tax time, it’s important to review the tax regulations for the state in which you reside. Some states have estate and inheritance taxes regardless of the type of trust you’ve established.