By Lee Sherman
Trusts, unlike the more common wills, provide you with a way to transfer your assets to your beneficiaries, while keeping the details of your hard-earned wealth away from prying eyes, unscrupulous speculators, creditors, and the taxman. If drawn up carefully they can anticipate any number of scenarios and specify the exact steps that must be taken for assets to be transferred.
Trust is given
A trust fund includes all of the assets to be redistributed following your death; stocks, cash, real estate, mutual funds, bonds, and even personal belongings or effects.
First, determine which one is right for you. The basic types include a “charitable” trust where your assets go to charity, a “life insurance” trust which manages the money for and distributes it to the beneficiary, and a “revocable” or “irrevocable” trust. A revocable trust allows for certain changes to be made (such as who the beneficiaries are) up to the time of death of the grantor, while an irrevocable trust is just the opposite. This is just the beginning of understanding the minutiae of trusts. When establishing a trust fund, make sure to get the advice of an estate planning attorney or financial planner.
When establishing a trust, the person whose estate it is, is referred to as the grantor, while the people receiving the assets are known as the beneficiaries. Perhaps the most important person in this transaction is the trustee. The trustee is the person chosen to execute the trust on behalf of the grantor. An ideal trustee is someone without any skin in the game, most likely not a relative, but perhaps a trusted business associate or lifelong personal friend. You’re choosing with an eye toward impartiality and fairness. A trustee might stay involved with your estate for many years following your passing so take the same care you would when hiring an employee. Trusts are designed to make sure that what you intend to get done will actually get done but even if you do the best job you can at codifying your intentions, a good trustee is still critical.
Anticipate the unanticipated
Despite your best intentions, you may not be able to anticipate everything. There are most likely to be some assets that were not named to your trust before your passing. So what happens to those? Consider a Pour-Over Will (no, it’s not a drink at Starbucks). Any of your assets that have not been named to your trust will be transferred to the pour-over will when you die. You won’t be able to avoid probate for these assets but having the pour-over will in place before you pass acts as a safety net that ensures that any assets you missed or accumulated after the trust was established will still go to the people you intend. In some states, without a pour-over will, your assets would go to your heirs, which may not be what you intended.
While choosing the right trust, picking the right trustee, and drawing up a pour-over will are good practices, don’t forget the simple things such as making sure you’ve properly funded the trust. If you don’t manage to add your assets to the trust before you pass, then your estate will end up going through probate anyway, mitigating the advantages of setting up a trust in the first place.
Lee Sherman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Lee is an experienced journalist and editor with over 30 years of expertise with a significant history of writing in the personal finance and technology arenas.