Over the years, many studies have shown that more than two-thirds of Americans have little to no estate planning. One aspect of estate planning that often is overlooked are establishing trusts. Trusts are used for several purposes and offer many benefits to an individual looking to protect their assets and their loved ones.
A trust is a legal contract which can be funded with assets like real estate, bank accounts, or life insurance, which then can be distributed easily amongst beneficiaries, usually after the individual passes away. A trust involves three important roles:
- Grantor: The grantor is the individual that wishes to create a trust for someone else, usually a spouse or child, and relinquishes ownership of the assets they wish to place into the trust. A grantor can either turn over the asset immediately or, as in most trusts, name a trustee who will take over the ownership, either when the grantor is unable to do so or when they pass away.
- Trustee: The trustee is put in charge of the trust by the grantor and will make decisions when the grantor passes away. The grantor can operate as the trustee while they are alive and name someone else as the trustee should they pass away or become incapacitated. The trustee must follow the stipulations on how to manage the trust that was put in place by the grantor. The trustee also must file proper taxes and report changes in the trust to the beneficiary.
- Beneficiary: The beneficiary, either an individual or a charity, receives the assets in the trust whenever the trust stipulates to do so. This could be, for instance, when the grantor passes away, or even when the beneficiary enters college or reaches a certain age.
There are two types of trusts to be aware of: revocable and irrevocable. The most common type are revocable trusts, as they are flexible, and the grantor is able to change them throughout the life of the trust. Irrevocable trusts, on the other hand, cannot be modified without the consent of the beneficiaries. Furthermore, an irrevocable trust has its own employer ID number, because it can no longer have the grantor’s social security number or taxpayer identification number.
There are several benefits to having a trust, including:
- Tax benefits: Assets in an irrevocable trust are not subject to estate taxes. Since the assets are no longer in the grantor’s name, they no longer have to pay income taxes on the trust’s earnings while they are alive, which lowers their taxable income. Beneficiaries do not pay estate taxes on what they inherit from a trust.
- Loved ones: One of the main differences between a will and a trust is that a trust does not have to go through probate court. In probate court, any disagreements would mean the assets may go to the government or to creditors. Trusts ensure that every dime you have gets to the people you want to get them to.
- Your children: Most people use life insurance as a way to protect their children should something happen to them, but trusts can also help in this particular situation. A trust allows the grantor to stipulate their beneficiaries to receive assets at a certain time, like if the beneficiary is a minor and must wait until they are 18 years of age.
- Grieving in peace: A will must go through probate court, which is public. A trust avoids going through probate and can allow a family to grieve instead of opening up old wounds.
Plainfield Wills, Trusts, and Estates Attorneys at Herold Law P.A. Help Families Create Trusts in Their Estate Planning
Creating a trust is an essential part of estate planning and can help protect your loved ones. If you need help with estate planning or making a trust, contact the Plainfield wills, trusts, and estates attorneys at Herold Law P.A. Call us today at 908-647-1022 or fill out our online form for an initial consultation. From our offices located in Warren, New Jersey, we proudly serve all clients of Warren and Plainfield.