Planning for your family's future is essential, no matter the size of your assets. Establishing a trust can be a great way to protect your wealth and ensure your family is taken care of, but it can also be a complicated process. There are many options when it comes to setting up a trust, such as a family trust or a life insurance trust, so it's important to know which one best fits your needs. The knowledgeable team at Ken R.
Ashworth & Associates can help you through this process and assist you in creating the perfect trust. The grantor of a trust is the individual who establishes the trust. They are responsible for deciding the type of trust, what assets will be included in the trust, how those assets will be divided, and who will hold them. Beneficiaries are people, usually family members, who will receive assets from the trust at a predetermined time.
They have no control over the trust other than receiving the assets. Finally, the trustee is the person appointed to manage and distribute the assets of the trust. In some cases, it may also be the grantor, who will select a successor in case of death. Every trust will include a grantor, trustee, and beneficiaries, but not all trusts are identical. For instance, some trusts are specifically for family members, while others have assets specifically designated for charity. Regardless of the particular details of a trust, it will always be designated as revocable or irrevocable.
A revocable trust, also known as a living trust, is established and maintained during someone's lifetime. This provides flexibility to the grantor because they can modify the terms of the trust as their life circumstances change. For example, in some cases, an active trust is created to guarantee that you can make certain decisions if you become incapacitated due to illness or other reasons. Revocable trusts allow you to avoid expensive court fees, but they don't usually provide tax exemptions. Irrevocable trusts are also created during someone's lifetime, but they don't offer the same flexibility.
Once an irrevocable trust has been established, it cannot be changed at all. This type of trust completely removes assets from its control. This can be beneficial for tax purposes, but not if your circumstances change and you need to make adjustments. The grantor determines which specific assets are included in a trust. Some assets are usually not included in trusts, such as everyday vehicles and retirement accounts, but for the most part, you can choose to include whatever assets you want.
Many people choose to include multiple bank accounts, high-value personal items, collectible vehicles, and even business interests in their trusts. Real estate, such as homes and commercial businesses, can also be included in a trust. Almost any asset can be included in a trust, although each of them will present unique challenges. For example, some things you need or use regularly could be included in your trust, but that could mean losing access to them when you need them. The best practice is to carefully determine what assets should be included in your trust before it is finalized. The trustee is officially responsible for the assets of a trust when it is established.
The person who established the trust can keep control of an active trust's property, but otherwise, the trustee controls all of the assets. They must keep accurate records, distribute assets according to the trust document, and provide regular reports to beneficiaries. However, once the assets can be transferred to the beneficiaries, full ownership will also be transferred. In an active revocable living trust, (RLT) the grantor still owns their assets and is responsible for reporting associated taxes on their personal return. This is different from an irrevocable living trust where the assets are no longer owned by an individual.
People create an RLT to give someone else power to make financial decisions on their behalf if they become unable to do so due to injury or illness. While establishing an RLT has many advantages, there are also some drawbacks. An RLT covers someone's assets while they are alive when they become incapacitated and after they have passed away. The assets in an RLT may also be subject to bankruptcy judgments since they are still owned by an individual. In an active RLT this may mean that the person who established it retains control while alive but then transfers it when necessary. An active RLT allows you to make changes (or amendments) to its document while alive at your own discretion. While an RLT is not usually used as a tax minimization tool on its own provisions can be included in its documentation to transfer assets by establishing a credit haven trust in case of death.
With an RLT you do most of the work in advance making disposal of your estate easier and faster when you act as trustee you have legal authority to spend and invest money or property for benefit of grantor and any other beneficiaries. The main difference between revocable living trusts and irrevocable living trusts is that with revocable ones you retain control over them while with irrevocable ones you don't have that option anymore once they have been established. For example if you want to change beneficiaries after an RLT has been established you can do so but with an irrevocable one that won't be possible anymore once it has been set up. A revocable living trust covers all aspects related to someone's estate while they are alive when they become incapacitated or after they have passed away making sure their wishes regarding their estate are respected. It's important to understand all aspects related to revocable living trusts before setting one up so that all parties involved know what their rights and responsibilities are regarding this type of legal document.