Should you use a trust to protect your assets and your loved ones? While many Americans have heard of trusts, they may have little understanding of how trusts work or what a trust can do for their particular situation. To help you make the right decisions about trusts within your estate plan, here is a short introduction to trusts.

What Is a Trust?

A trust is a legal tool that creates a separate entity from the person who funds it. The grantor sets up the trust, transfers assets into it, and appoints themselves or another person as the trustee to make decisions and carry out legal requirements for the entity. Trusts come in many shapes and sizes, some that are general in nature and others that have very specific purposes (such as providing for a particular child).

How Do Revocable and Irrevocable Trusts Differ?

Trusts are broadly defined as being either revocable or irrevocable. Revocable trusts are more common in most estate planning situations. The terms under which the trust was created (such as how income is distributed or who is the beneficiary) can be revoked or replaced at any time by the grantor.

Irrevocable trusts, on the other hand, do not allow the grantor to change the terms once the trust is set up. This makes them less popular as it takes away more control from the individual. However, the irrevocable status does provide additional financial protection.

Can a Trust Benefit You During Your Life?

Trusts are often thought of as estate planning tools, but they provide benefits while the grantor is alive. Irrevocable trusts, for instance, reduce the person's liability by separating the individual from the asset. This can be very useful for potentially risky income-producing assets or business interests.

A trust also ensures your finances (and other matters under the trust's jurisdiction) continue to be managed even if you're not able to make decisions directly. If you are incapacitated from an illness or injury, your named successor trustee takes over immediately and makes decisions on your behalf. This can also be applied if you travel extensively or are otherwise out of communication for any period.

How Does a Trust Help Your Estate Plan?

Trusts can be helpful when the grantor passes away. Because an irrevocable trust is not treated as part of the person's estate, it allows a large estate to stay below the threshold for estate or inheritance tax. And both revocable and irrevocable trusts avoid probate, which means beneficiaries have access to inherited funds immediately rather than possibly waiting months for probate to end.

Trusts also protect your privacy. While a will is a matter of public record, a trust is a separate and closed document. No one will know what is in your trust, what assets are involved, its value, or who is the beneficiary.

Do You Need a Lot of Assets for a Trust?

Many people think trusts are only for people with a lot of money. But in fact, they serve the same purpose for someone with just one large asset, such as a house, as for someone with ten investment properties. More importantly, they protect your ability to make decisions for yourself and your family. And simple trusts can be very cost-effective and require little maintenance. This makes it so they are accessible to everyone.

Who Can Help Create a Trust?

Want to know more about adding a trust to your estate planning? Start by meeting with the team at Bliss & Skeen, CPAs today. We will work with you to assess your trust goals and needs, build a trust that works best for you, and even help administer it. Call today to make an appointment.