After a lifetime of saving, investing, and strategic financial planning, you might feel like it’s time to declare, “mission accomplished.” But over time, your priority will likely shift from building wealth to protecting it.
That’s where a trust comes in. This valuable structure allows you to dictate how your wealth will be protected and distributed to your family.
Here’s what you need to know about setting up a trust for you and your family.
Trusts vs. wills: The key differences
Trusts are not the only way to distribute assets after your passing. In fact, most people are probably more familiar with wills than trusts. What are the differences between these two strategies?
Wills
● Do not go into effect until after your death
● Require probate, a legally mandated court process that can take months to complete
● Are overseen by an executor
Trusts
● Go into effect immediately upon creation
● Avoid probate and therefore are not public record
● Allow for more specific inheritance instructions
● Are overseen by a designated trustee
For families looking to protect their assets over generations and who desire more degrees of freedom in dictating how their wealth will be passed down to their family, trusts are often the better choice.
Understanding different trust structures
There are two main types of trust structures: revocable and irrevocable.
Revocable trusts
Under a revocable trust, also known as a living trust, you may change the terms during your lifetime. This can be an appealing option for those who wish to establish a trust and take advantage of the benefits, such as avoiding probate, but who wish to retain control over their assets during their lifetime.
Irrevocable trusts
An irrevocable trust, as the name implies, is not amendable once it is created. While this might seem like a dangerous idea, it can be a shrewd choice, so long as you take care to craft your plan carefully and exactly according to your wishes. Most importantly, an irrevocable trust has tax advantages over a living trust and also can serve as a way to protect your assets from lawsuits or judgements in the long term.
How to create a trust
Once you’ve decided which kind of trust to establish, there are a few critical steps you must take to actually create the trust.
Step 1: Selecting a trustee
This is one of the most important decisions you will make in establishing a trust. The trustee is the person who will control your assets after your passing, presiding over the trust and ensuring that your assets are distributed according to your wishes. This individual might be a lawyer, an accountant, a family member — what matters most is that you trust them.
Step 2: Naming the beneficiaries
Once you have decided who will administer the trust, you can begin the process of drafting whom you wish to inherit your assets. One of the benefits of a trust is you may craft a more specific inheritance structure compared to a standard will.
Step 3: Funding the trust
Once you’ve established who your beneficiaries will be, it’s time to fund the trust. After you’ve created a trust, it will officially become the owner of your assets. (This is how the trust manages to shield assets from lawsuits and also achieves tax benefits that those with a will or living trust may not be able to access.)
A trust does not formally go into effect until it is properly funded. It’s important to consult with a trust expert at this time to ensure that all legal requirements have been appropriately followed and considered.
Which structure is right for you?
At Price Financial Management, we are dedicated to helping clients achieve their financial goals and protect their assets so that they can be safely passed down to loved ones.
There are a range of different structures that we can deploy to help clients with these goals, and the specific strategy will depend on your own unique financial circumstances. Don’t navigate this essential process alone. Get in touch with our team today to discuss how we can help you craft an estate plan that’s right for you.