What is a trust? Trusts create a fiducial relationship whereby you (the grantor/ trustor) give another party (the trustee, the authority to handle your asset (trust property) on behalf of a third party (your beneficiary) for the beneficiary’s benefit.
In estate planning, a trust is a planning tool that helps manage property and assets during your life or after you have passed on. Many people use a trust to supplement a will.
So, should you place your possessions in a trust? Trusts are an excellent tool for financial planning and preparing for the future. For example, the property passes directly to your designated beneficiaries upon your death without going through probate.
Benefits of placing property in a trust
- It helps protect your assets from creditors and potential lawsuits.
- It can include an incapacity clause. Here, you can designate a person to handle your affairs on your behalf in case you become incapacitated or mentally unfit. This individual could then sign your papers on your behalf.
Types of trusts
Although there are trusts that may fulfill many specific purposes, primarily, there exist two types of trusts that you can choose from:
- Revocable trusts – As a trustor, you maintain legal ownership and control of your assets. An asset placed into the trust may be subject to estate tax, and the trustor is responsible for paying the taxes on the asset’s income. It is more flexible, and you can modify the trust to your needs.
- Irrevocable trusts – Legal ownership for the trust passes on to the trustee. This lowers the taxable portion of your estate as the trustee pays the taxes through the trust. Also, the trust is permanent, and you can only make changes if you receive the permission of everyone mentioned in the trust.
It is important to place your property in trust and safeguard the future of your beneficiaries because failing to plan is planning to fail.