Trusts Part 1: Is there a role for trusts in my estate plan?
May 26, 2021

Although the public perception of trusts is often as only for the wealthy, trusts can help many people achieve diverse financial goals. To better understand why you might want to incorporate a trust into your estate planning, you need to know what a trust is and the benefits it can provide to you and your family.

As a fiduciary relationship, a trust establishes legal protection between a trustor and a trustee. The relationship allows the trustee to hold title to property or other assets, as determined by the trustor, for the benefit of a third party. Trusts are complex financial instruments that specify how you, the trustor, would like your assets managed and distributed while you’re alive or following your death.

When a trust takes effect is a primary consideration. A living trust, sometimes called an “inter-vivos trust” is a written document that details a person’s assets and allows for their use while they’re alive. At the time of death, the assets are transferred to whomever the individual has designated as his or her successor. A testamentary trust, sometimes called a will trust, spells out how the assets are designated after the person’s death.

In addition to being classified as living or testamentary, trusts are also written to be revocable or irrevocable. A revocable trust is one that can be changed or ended by the trustor during his or her lifetime. Conversely, an irrevocable trust cannot be changed once it is created without the consent of the beneficiaries.  Irrevocable trusts offer creditor protection and exemption from estate taxes in exchange for limiting access to assets to the discretion of a trustee.

There are a variety of reasons why people set up trusts. Some seek to eliminate or reduce inheritance and estate taxes. Creating a trust can allow your estate to avoid probate keeping its value, contents and beneficiaries out of public records.  Often trusts are established to provide for children’s educational expenses.

A trust is also a viable way for you to provide for a beneficiary who may have special needs, who has not yet reached adulthood or who may have a mental disability. Provisions can allow beneficiaries access to the trust if and when it has been determined that they are capable of managing their finances. If they are unable to independently make such decisions, the trust can spell out other avenues to financially care for them.

It’s important to note that creating trusts requires an investment of time and money for the best legal and financial advice.  Once established, they are not easily revoked.  Working together, your attorney and accountant can help you decide whether a trust should be part of your estate planning.

To learn more about trusts and whether they could be appropriate for your particular situation, contact one of our accountants today.  We can advise you on the current and future tax implications of any plan you are considering.


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Diamond & Associates CPAs