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Trusts and Estate Planning: What Do I Really Need to Know?

A trust is an agreement between two parties, the settlor and a trustee. They may be used for many purposes, and one is for the trustee to accept, manage and protect assets delivered by the settlor, administer those assets according to the trust’s instructions and distribute the trust income and principal, according to the trust only for the benefit of those you’ve named.

Kiplinger’s article “Trusts 101: Why Have a Trust?” explains that the trustee is a fiduciary and must act with reasonable care in administering the trust and selecting investments. She also must avoid any conflict of interest or self-dealing in holding, purchasing and selling assets, and diligently avoid breaching any of the trustee’s duties to the settlor and beneficiaries.

The trustee must follow the trust terms. She must also be wise in making investment and administrative decisions and be objective and transparent.

Trusts can be created for several reasons, such as the following:

  • To oversee spending and investments to protect beneficiaries from poor decisions;
  • To avoid court-supervised probate of trust assets;
  • To allow for privacy;
  • To shield trust assets from the beneficiaries’ creditors;
  • To keep premarital assets from a division of assets between divorcing spouses;
  • To earmark funds to support the settlor, when incapacitated;
  • To manage unique assets that aren’t easily divisible, such as a vacation home or a pet;
  • To manage closely held business assets for planned business succession;
  • To hold life insurance policies, pay premiums and collect the tax-free proceeds to care for beneficiaries, fund closely held stock redemptions or purchases and provide liquidity to the estate;
  • To provide structured income to a surviving spouse that shields trust assets for descendants, if the spouse remarries; and
  • To decrease the amount of income taxes or to shelter assets from estate and transfer taxes.

Documents can be created to achieve specific goals and give tools for the trustee to balance those goals with investment and economic factors.

The most common type of trust is a revocable living trust. In order for it to work properly, it is important that your assets be re-titled into the name of the trust. This is also known as funding. Your documents will include instructions for how you want your estate divided among your beneficiaries and how each person’s share or interest in the trust is managed, administered and distributed. Living trusts are flexible, so that as children grow into adulthood, you may make changes to reflect life events.

Request a consultation with one of our experienced estate planning attorneys to start the process of creating your estate plan.

ReferenceKiplinger (June 11. 2019) “Trusts 101: Why Have a Trust?”
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