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Estate planning isn’t just for the wealthy, it’s something everyone should consider. It’s all about protecting the people and things you care about most. While organizing cash and assets may seem like a big task, working with an estate planner can make it easier. One key tool in this process is a trust fund, which can help secure your loved ones’ future while ensuring your assets are managed effectively.
A trust fund is but one of the tools of estate planning and one could think of it like obtaining a credit card when going off to college. It provides for you when you need it. A major difference is that with a credit card you must develop requisite management skills, lest you develop bad credit habits that could lead to a poor credit score. With a trust fund, you aren't borrowing money with interest from a lending firm. In this scenario, the money has been bequeathed to you.
What, Exactly, Is Estate Planning?
Estate planning is essential for ensuring assets are distributed smoothly after death. It involves creating documents to manage asset transfers, establish management guidelines, and determine distribution rules. Estate planning covers personal property, investments, bank accounts, artwork, real estate, and debts. Wills and trust funds are commonly used for their effectiveness in providing clarity and legal certainty in such matters.
What Is a Trust Fund?
A trust fund is a legal entity that holds property or assets on behalf of a person or organization. It can include real estate, stocks and bonds, money, or a business. Trust funds provide tax benefits and financial protections for the involved parties. Establishing a trust fund involves three parties: the grantor, beneficiary, and trustee, each with specific roles.
The grantor initiates the process by setting up the trust fund and contributing assets. The beneficiary is the person for whom the assets are managed. It's important to clarify the beneficiaries and the assets to prevent disputes. The trustee, as the appointed fiduciary, is responsible for carrying out the grantor's wishes.
How Does a Trust Fund Work?
Trust funds are logistic necessities because they take any and all guesswork out of parsing out the details of a person's assets. They are an estate planning tool that is used for managing the assets that will be distributed. The grantor creates the arrangement that lays out all of the logistics involved in managing assets, which will go into effect when they no longer have the mental capacity to make such decisions, or when they are deceased.
The trustee’s duties can include allocating living expenses or even educational expenses for the beneficiary. If, for instance, a grandparent wants to leave a sum of money that can be used exclusively for higher education, they can set up a trust that details exactly the parameters by which the trust may be utilized. On the other hand, there are scenarios, where a lump sum is paid directly to the beneficiary, which comes without any conditions for relatives to use.
What Is Probate Court?
Probate is the term that describes the official proving or validating of a will. When the assets in a trust are in dispute, parties may end up in probate court. A probate court is a type of court that deals with the property and debts of a person who has died. It is a means of helping ensure that assets are distributed in the spirit of the granter. This speaks to how precise the language must be when drawing up the paperwork involved in estate planning.
Probate courts oversee the execution of wills and the handling of estates, conservatorships and guardianships. The court usually must approve the activities of the executor appointed to handle matters. When a will is contested, the court is responsible for establishing the authenticity of the document and the cognitive ability of the person who signed it. If there is no will, it is the court that decides who will receive the decedent's assets.
What are Types of Trust Funds?
There are three common types of trusts: revocable, irrevocable and asset protection trusts. There are more subcategories, each speaking to a range of terms and potential benefits.
What Are the Benefits of a Trust Fund?
There are many reasons to consider a trust fund when going about the business of estate planning. Some of the most common include tax advantages and privacy. Concerning taxes, certain types of funds allow for the transfer of assets outside of the estate, which can reduce estate taxes. Concerning privacy, trust funds do not become part of the public record. Other benefits include:
- Establish children as beneficiaries
- Bypass probate
- Control of assets
- Protecting assets from creditors
A Trust Fund Is a Step Toward Financial Security
A trust fund is significant for several reasons. It ensures protection when the worst kind of emergencies occur. It also speaks to the idea of employing money and assets as protective entities, which, one might argue, is exactly the point. Beyond comfort and luxury, money provides the financial security that keeps the proverbial wolf from the door. In this way, it's very much like higher education. By educating yourself, theoretically about all things that affect your future, such as money or developing a trade or skill, you're taking steps to ensure your own security.
