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Taxes Aside — Five Enduring Uses for a Trust
Think about a roll of duct tape for a moment. The classic use is to seal the joints of a forced air heating or air conditioning system. But today, most duct tape sells because of its many other helpful applications, including making quick repairs, securing packages, patching holes, and even protecting windows during storms.
There is a parallel here with a prime tool for managing personal wealth — a trust. Setting up one or more trusts under a will has long been an effective strategy for avoiding or reducing estate taxes.
Should the federal estate tax ever truly disappear — an uncertain scenario at best given the 2001 tax law’s sunset provision — the need for trusts to control potential taxes may also fade away. However, like the roll of duct tape, trusts are a versatile tool with other good uses that endure, regardless of whether the estate tax eventually disappears.
Asset Management
The time and effort needed to personally manage your investments do not diminish over time. The danger of mental or physical disability during advancing years is a real one. Or, you may not be confident that your heirs will be able to handle your money well.
Any of these reasons may make you want to transfer responsibility for investing your assets to a third party. Placing the assets in a trust can assure the trustee’s prudent asset management in the event of your disability or death.
You would name the trust’s beneficiaries, set its terms, and name a reliable and experienced trustee, such as our institution.
Asset Protection
Your investments and other assets are always at some risk from lawsuits and creditors, especially if you are a business owner or professional. However, by placing assets in an asset protection trust, you can insulate them from many potential future claims against you. The trust would be tailored to your own circumstances and objectives. You can be the trust’s beneficiary, but you would have no power to revoke the trust and no power to require the trustee to make distributions of income or principal to yourself.
Special Needs
Your adult child or other relative may have special health, education, or other needs. You can give a trustee the responsibility for making sure those needs are met. This will ensure that any assets you place in trust are used exclusively to benefit your beneficiary — regardless of whether you are there to help or not.
Probate Avoidance
The probate rules of some states can make settlement of an estate both a costly and time-consuming process. However, any assets held in a trust that is both created and funded during the grantor’s lifetime — often called a living trust — do not pass through probate. Only the trust’s terms govern the trustee’s distribution of the assets. That lets the trust function as a private will substitute for all its assets. However, a will and, therefore, probate would still be needed for any assets you do not place in the living trust.
Flexible Provision for Unequal Needs
You may be sure which individuals you want to receive a share of your wealth. Yet you may recognize that the future needs of each may vary greatly from the present situation. If you wish, a trust can give its trustee the discretion to assess future needs and distribute trust income among the beneficiaries you name as future circumstances make appropriate.
A Custom Arrangement
Any trust is a custom financial arrangement. If you want to know more about how your financial situation might benefit from the use of a trust, please don’t hesitate to call us.
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