Protecting assets in a trust ensures they will wind up where you want them to.
Whether you want to help pay for your grandchild’s future education or set aside some assets as a posthumous gift to a longtime friend, you may benefit from creating a trust. You don’t have to be a financial expert, and you don’t have to have millions. The median trust fund value was around $285,000 in 2015, according to New Retirement, but you can create a trust of virtually any value. All you need are assets, a beneficiary, and a trustee who will administer your trust according to your wishes.
The Steps to Take When Setting Up a Trust
1. Schedule an appointment with an estate attorney.
2. Decide whether you want to create a living trust, which goes into effect while you are living, or a testamentary trust, which activates upon your death.
3. Determine whether a revocable trust or an irrevocable trust will best serve your purposes.
4. Choose the assets you will transfer to the trust, which could be money, real estate, stocks and bonds, or other tangibles such as artwork.
5. Designate a trustee.
6. Designate a beneficiary, such as an individual or a charitable organization.
7. Complete and sign the legal documentation that establishes the trust.
8. Transfer your assets to the trust.
The Benefits of Creating a Trust
Besides protecting your assets for a specific purpose, creating a trust provides other significant benefits. For a start, those assets will not get tied up in probate, but will go directly to your beneficiary according to your wishes upon your death. The details of your trust remain a private matter that will not be exposed in probate court. In addition, the value of the trust remains separate from the value of your estate, which is a positive for estate tax purposes. Another potential benefit is that the terms you set up for your trust can limit the frequency and the amount of withdrawals to guide the beneficiary in using the funds wisely.
A separate issue is Medicaid planning. Irrevocable trusts are a tool that can be used to help you arrange your assets so that you can qualify for Medicaid after they conduct a “five-year lookback”.
The Drawbacks of Placing Assets in a Trust
When you place assets in an irrevocable trust, you no longer have access to them because they no longer belong to you. Therefore, be sure you can do without whatever you want to set aside. Also, trust funds are not tax-free financial entities; if your trust earns dividends or interest, your trust will pay tax on that income.
Get Legal Help for Setting Up Your Trust
At McLane & McLane law firm of the Springfield, MA area, we can help you determine the type of trust that will work for you and help design one that is legally binding while meeting your personal specifications. Please visit us online or contact us to set up a consultation today.
