What is a Trust and why do you need one?

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A trust is a legal entity that holds assets for the benefit of another. This trust is created by an agreement between the trust maker — referred to as the Grantor — and the trustee who acts as a manager of those assets, for the benefit of certain people, known as beneficiaries.

Like another legal entity such as a corporation or LLC, a Trust can perform various kinds of economic and legal activities such as own, purchase, sell, and/or convey properties, lend or borrow monies, enter into a contract, etc.

You can put practically any kind of asset into a trust, including cash, stocks, bonds, insurance policies, real estate, and artwork. The assets you choose to put in a trust depend largely on your goals. For example, if you want to avoid probate, then put all your probate assets into your trust so that all the probate assets can turn into non-probate assets. Or, if you want the trust to generate income, you may want to put income-producing securities, such as bonds, in your trust. Or, if you want your trust to create a pool of cash that may be accessible to pay any estate taxes due at your death or to provide for your family, you might want to fund your trust with a life insurance policy.

The grantor names beneficiaries, who will benefit from the trust. Beneficiaries are usually your family and loved ones but can be anyone, even a charity. The trustee is responsible for administering the trust, managing the assets, and distributing income and/or principal according to the terms of the trust. Depending on the purpose of the trust, you can name

yourself, another person, or an institution, such as a bank, to be the trustee. You can even name more than one trustee if you like.

Why do you need to create a Trust?

Since trusts can be used for many purposes, they are popular estate planning tools. Trusts are often used to:

  • Minimize estate taxes
  • Shield assets from potential creditors
  • Avoid the expense and delay of probating your will
  • Preserve assets for your children until they are grown (in case you should die while they are still minors)
  • Create a pool of investments that can be managed by professional money managers
  • Set up a fund for your own support for your loved ones in the event of incapacity
  • Provide benefits for charity

The type of trust used, and the mechanics of its creation, will differ depending on what you are trying to accomplish. In fact, you may need more than one type of trust to accomplish all of your goals. And since

some of the following disadvantages may affect you, discuss the pros and cons of setting up any trust with your attorney and financial professional before you proceed.

For a consultation about a trust that may tailor to your estate planning needs, call 678-770-3050 or email info@ikkimlaw.com.