Getting to Know Trust Funds

For many people, a trust fund may only be useful for people with a lot of money to spare. But with the increasing number of people accumulating quite a substantial amount of wealth through the increase in property value and positive gains from market driven retirement plans, even ordinary people today may find that setting up a trust fund have provide some valuable function in their future financial plans.

Trust funds are usually set up in order to help preserve and maintain a potion of a person’s wealth. A trust can even be used as an alternative to a will when giving away property. In setting up a trust, an individual agrees for a legal entity to hold assets in place of the estate owner’s beneficiaries. By setting up a trust, an estate owner can ensure that the assets he or she leaves are not used up quickly.

There are certain benefits that trusts can provide to people concerned of preserving their property. It can be used as a means to protect the assets for the beneficiary. Having a legal trustee to handle the trust fund for the beneficiary would ensure that the assets are being managed and handled more expertly than what the beneficiary can achieve by doing it himself. A trust fund can also be a means of preventing a beneficiary of squandering the assets. Setting up a trust may also provide the estate owner with substantial tax savings.

There are different types of trusts that people may be able to set up. One is the testamentary trust. A testamentary trust is a trust that takes effect upon an estate owner’s death. A testamentary trust usually is part of the actual will. While the estate owner is alive, the testamentary trust only exists on paper. Since testamentary trusts is only activated upon an estate owner’s death, it is revocable and can be amended while the owner is still alive.

There is also the living trust. This type of trust can take effect even if the estate owner is still alive. Any asset designated in the living trust becomes the property of the beneficiary or the trustee. In this case, the owner of the estate no longer owns them. But the estate owner may be able to have control over the assets by naming himself as a trustee.

Living trusts can either be revocable or irrevocable. Revocable living trusts can allow an estate owner to change or terminate the trust at any time while an irrevocable trust does not provide the owner with this privilege. A disadvantage of a revocable living trust is that it is not exempted from certain taxes and would not protect the property from creditors while an irrevocable living trust can. The advantage common to both living trusts is that they help the estate owner avoid a lengthy probate.

 

Posted by Ardent Editor on Mar 26 2008 in Estate Planning

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