You’ve probably heard it said, the only certainty in life is death and taxes. These certainties are what are most considered when determining if a trust should be part of your estate planning.
What is a trust?
“A trust is a set of instructions – a financial blueprint or road map- that says to whom the estate will be distributed…when and how and under what circumstances heirs will receive their inheritances and what goals the trust will pursue,” according to Cannon Financial Institute.
A trust is simply an arrangement where one party (a person or bank) holds property for someone else’s use or benefit.
A trust document is written and signed by the person who creates the trust. It provides instructions for what the person in charge of the trust is to do with the property being held for the beneficiary. A trust becomes its own entity for legal purposes.
Benefits of having a trust.
1. Items held in a trust do not have to go through probate.
Probate is an expensive and lengthy process and all the items you own are reported to the court to become part of public records.
2. Trusts limit the tax burden on your heirs.
Nearly everything you own becomes taxable upon death. Paying that tax becomes the responsibility of your heirs. If your trust is set up so that only partial payments are made to your heirs over their lifetime, only those partial payments are taxable.
3. Trusts make settling affairs easier after you have passed away.
Do your heirs know the names of every bank you have money deposited? Do they know if you have a safe deposit box? What about Life Insurance policies or pensions from a former employer? If everything is in the trust or is payable to a trust upon your death, all this money ends up in the same place.
4. Trusts can ensure inheritance funds are used responsibly.
How many 23-year-olds who inherit $1 million would choose a new sports car or quick trip to Vegas over investing the money wisely so it will last forever? A trust can determine how the cash will be paid out to an heir over time.
Should I create a trust?
Creating a trust is an important decision. Seeking advice from a lawyer regarding the types of trusts, specific benefits for your situation and expenses involved to create the trust will help you decide if you should move forward.
Selecting who will manage your trust is also an important decision. The Friendship State Bank offers a variety of trust services and we would love to discuss the best options with you for your trust needs.