Contrary to popular belief, trusts are not estate planning tools used only by the ultra-wealthy.
What is a trust?
A trust is essentially a vessel that holds assets - almost like a box you put things into. It is an entity that can hold its own assets and property, hold its own social security number (EIN), pay its own taxes, sue people, collect debts, make loans, etc. It can do fundamentally anything a person can do with assets and property. Many choose to set up a trust because it allows them to establish specific stipulations or requirements on how their belongings are distributed.
The person who creates a trust is called the Grantor. The fiduciary of the trust is called a Trustee. A Trustee is charged with administering the trust in the same way the fiduciary (or Personal Representative) of a will is charged with administering the estate and terms of the will.
What are the benefits of setting up a trust?
A trust has many different functions. It has the ability to give contingent gifts. For example, you can choose to give your grandchild money under the condition they must be twenty five years old when they can receive it. However, these conditions must be set before the gift is given. A grantor is able to set any contingency so long as it is legal and not in violation of public policy.
A contingency in violation of this would be a gift given on the condition that the beneficiary does something against the law or against public policy. An example of this could be a parent giving their child a set amount of money only if they divorce their spouse. This is in violation of public policy and would not be upheld in court.
A trust can also hold income property. Income property is similar to rental property. The trust acts as a landlord. Income from rentals can be used to create a revenue stream for Beneficiaries. Similarly, an income-trust is able to provide consistent income to an individual. For example, this could mean the individual receives $1000 every two months (this could be any amount of money over any period of time set by the Grantor).
A trust can also avoid probate of real property. For example, if you have a will, transferring title of real property to a Beneficiary typically requires that the Personal Representative acquire letters of administration (which is granted through an testate probate). A trust avoids these procedures.
The Difference Between a Trust and a Will
There are many differences between a trust and a will. The job of a will is to gather all individual assets and property and dispose of it all. The job of a trust is to hold assets, property, possessions, etc. It’s almost like a box you put things into. So rather than disposing of all assets (like a will), a trust holds the assets.
Another difference is that a trust can give contingent gifts. A will outlines what assets are given to which Beneficiaries, but cannot set a contingency for these gifts to be given.
How We Can Help
Baxter Legal Services can help you properly set up a trust to allocate your assets to your beneficiaries, or help you minimize tax liability. Contact us today for expert advice on creating the type of trust you need to achieve your financial objectives.