Legal Retirement

What is a Trust … and Should You Use One to Protect Your Wealth?

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In your wealth creation journey, many people might have called you avaricious or even described you as suffering from plutomania. But you finally achieve your much-desired success, you alone can tell the struggles you went through to get there!

Well, creating wealth also comes with the huge responsibility of ensuring its protection even years after your soul has rested in a better place beyond what this earth can provide.

As you might already have a clue, trusts are among the best ways to do this, and, contrary to popular belief, they’re not only limited to high-net-worth individuals!

Let’s look at what trusts are exactly, and whether or not you should use them to protect your wealth.

What Exactly Is a Trust?

A trust is basically a legal entity that is separate from the person who creates it. The trust allows one to set aside property or assets that will be managed by someone else on behalf of another individual or group of people—the beneficiaries.

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Understanding How a Trust Works 

The person who sets up (or creates) a trust may be referred to as its “settlor,” “grantor,” or “trustor.” The person who manages the said assets, on the other hand, can be called its “trustee” or “fiduciary.”

Upon the grantor’s death, the trustee or successor trustee is legally left in charge of initiating its termination, which means distributing the assets in question to the stated beneficiaries as per the trust, often without having to go through court probate.

If you’ve been wondering whether or not it’s a good idea, this is how trusts work basically. But several types of trusts exist, each with its own merits and demerits.

The Different Kinds of Trusts 

There are many different kinds of trusts. Some of the most common ones include:

  • Discretionary living trusts – A trust that involves more than one beneficiary, where the trustee has full discretion regarding when and how to distribute the funds/assets.
  • Generation-skipping trusts – These allow you to pass on wealth to your grandchildren without paying estate taxes.
  • Irrevocable life insurance trusts – These allow you to use life insurance policies as collateral for loans.

An estate attorney can help you understand the perks and downsides of each of these options, so you can decide accordingly.

The Benefits: Why Would You Set Up a Trust?

A properly structured trust can help protect both your personal assets from creditors as well as your business assets from lawsuits. It can also provide security from predatory relatives who may try to seize control of your estate after death, especially where a will doesn’t exist.

Some of the biggest benefits of using a trust to protect your wealth include:

  • You can avoid probate: 

This is one of the many reasons to start a trust even if you’re not super-wealthy. Because a Trust is separate from your estate, it helps avoid the court process of probate. This can save you time and money in legal fees. Distribution of the assets left behind can be done with minimal to no paperwork at all, without involving the court.

  • You can avoid estate taxes: 

Just as it is important to entrepreneurs who are keen on keeping business costs under control, taxation is a crucial consideration in estate planning. You can also avoid paying federal estate taxes on assets that are transferred to your trust before they’re distributed to heirs. However, this may depend on how much those assets are worth when they’re transferred.


What’s Involved in Setting Up a Trust?

Even though it’s best done with the help of an estate planning lawyer, there are a few steps involved in setting up a trust. First, you need to decide what assets you want to put in the trust. Then, you need to decide who will be the trustee and beneficiaries of your new trust.

You also need to figure out how much money will be needed for annual maintenance and administration costs, making it important to know how much money is going into the account each year (and where that money comes from).

Finally, once all those things have been decided upon and written down on paper with the help of an estate planning attorney or financial planning expert (depending on whether it’s for personal use or corporate use), then it becomes official!

As you can see, setting up a trust can be a great idea as long as you have some wealth that needs protecting. It’s even more important if you’re in a situation where you can’t draw a will just yet.

Nonetheless, it is essential to consider the assets or property you’re looking to protect as well as the costs associated with setting up and maintaining the trust.

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The content of this website is for informational purposes only and does not represent investment advice, or an offer or solicitation to buy or sell any security, investment, or product. Investors are encouraged to do their own due diligence, and, if necessary, consult professional advising before making any investment decisions. Investing involves a high degree of risk, and financial losses may occur.

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