Trusts: one way to make your wishes known

There are a variety of reasons for establishing a trust, but most are rooted in concerns for someone else – family members, a business or a charity you support.

A trust is a document that describes how your property and other assets are managed for the benefit of others. An important part of setting up a trust is naming a trustee. Learn more about the types and roles of the decision-makers in your life: Who will act for you.

Why you might want a trust

Trusts can be established for many reasons, most of which focus on protecting or preserving your assets for your heirs. Here are a few reasons to establish a trust:

Care for dependent loved ones: If you have minor children or other dependents, you may establish a trust to manage money or other assets that you left to them. You may have an adult child or other dependent with disabilities who could be helped financially by a trust.

Make gifts to charity: You can use a trust to give a gift to a charity while providing income and reducing income taxes. If your children are financially independent, treating your church or a charity as one of your heirs can illustrate the importance you place on helping others.

Manage estate tax issues: Without a trust, large estates are subject to high taxes, up to 50% or more. Estate taxes (due on the amount above the government’s exemption limit) affect fewer people today than in the past. If your estate is above that limit, placing some or all your assets in a trust can reduce the taxes that your heirs would owe.

Two basic types of trusts

Testamentary trusts are set up through your will upon your death. With this type of trust, you can spread out payments from the trust over time.

For example, these trusts often are established to care for minor children in cases where both parents die. These trusts can provide regular payments until the child reaches a certain age. They also can be set up to pay for specific expenses, such as college tuition.

Inter vivos (living trusts) are established while you are alive. You can name someone else or even yourself as the trustee. You also name a successor trustee to take over if you become incapacitated or die.

An important benefit of a living trust is continuous management of your assets through death. After you die, no new account or structure is needed to manage your money. Assets in a living trust usually are not subject to probate proceedings, providing a quicker distribution of funds to your beneficiaries.

There are two types of living trusts – revocable and irrevocable. As the name suggests, a revocable living trust can be canceled and the assets returned to your estate. An irrevocable living trust is permanent.

Individuals or institutions involved in a trust

The grantor (also called the settlor or donor) is you, the person who funds the trust.

The beneficiaries are the ones you name to receive your assets.

The trustee is responsible for managing and distributing your assets in the best interests of the beneficiaries.