A trust is now considered the wisest element to be included in your estate plan. It was once primarily used only by wealthy people to protect their wealth from creditors and lawsuits,but now it is also adopted by average people as well. With the growing protection needs for families, there are numerous types of trusts created to focus on specific protection goals. This may be overwhelming for you,but understanding the types of available trusts that exist, and hiring a trust administrator to over see your trust is imperative.
What is a Trust?
A trust is a legal written relationship by which a property is transferred from a person to another person who holds this property for the benefits of a third party. There are many types of trusts but in general they are divided into two main categories, living and testamentary trusts. Regardless the type of the trust, they are created based on constant elements such as the appointment that is held between the trustor and the trustee. Parties in a trust are three, the trustor, the trustee and the beneficiary.
- The trustor: he is the primary owner of an asset, a property or an estate. He creates the agreement elements to transfer his ownership to the trustee.
- The trustee: this is the person who receive the asset, property or estate from the trustor in order to manage it for the benefit of a third party.
- The beneficiary: this is the third party of the agreement. The beneficiary may be one person or more. Terms of the agreement are written to ensure that the beneficiary will be able to use the asset, property or estate under management of the trustee.
Most common types of Trusts
A living trust is a way of protecting your assets when you are alive without being afraid about the transfer of these assets after death. It is known also as an inter-vivo trust that is created by the trustor for the benefit of other individuals but the trustor will be able to benefit from his assets while he is alive. After death, these assets will be transferred directly to the beneficiary without the need of a probate court and this will save a lot of money that could be spent on the court affairs.
This type is similar to the living trust as it is created during the lifetime of the trustor. But, it is a little bit different because the custody of assets inserted on the revocable trust is transferred to the trustee until the death of the trustor then they will be available for the beneficiary under the ownership of the trustee. While the trustor is alive, he can change or even terminate this trust at any time he wants.
Unlike the revocable trust, the irrevocable trust is a trust that couldn’t be terminated or altered by the trustor while he is alive. It will be valid until the death of the trustor. So, once an irrevocable trust is made, inserted assets couldn’t be moved back under the custody of the trustor. Irrevocable trusts are more efficient than other types because they cost little or even no estate taxes. So, once you determine assets with a final transfer decision, an irrevocable trust could be the best choice for you.
In this type, a charity or a non-profit organization will be a main party of the agreement. It could be the beneficially, the trustee or both of them. During your lifetime, you can create a charitable trust to assign some of your assets to be transferred to a specific charity as a beneficiary after your death. Furthermore, you can add other beneficiaries such as inheritors or children who can receive part of the transferred assets while passing the remaining to the charity.
Asset protection trust
In this type, the trustor and the beneficiary are the same person. You can create an asset protection trust to protect your assets against creditors for a term of years. During this period, you will not be able to benefit from your protected assets in the trust because it is irrevocable. This will protect your assets from creditors’ current risks. When it is due, your undistributed assets will be returned back to you. Asset protection trusts are usually created by foreign jurisdiction outside the United States but your protected assets don’t have to be transferred abroad.
Unlike other types of trusts, a testamentary trust is created once the trustor is dead. It is based on the written will by the trustor. So, it is often called a will trust. This type is usually managed by an executer who allocates the trustor assets to the beneficiaries as specified on the will. This trust is irrevocable by nature. So, it couldn’t be changed.
Why hiring a Trust Administrator is the best choice for you?
A trust is a legal responsibility. So, parties of a trust especially the trustee should have some knowledge of laws related to trusts and estates. In fact, regardless your knowledge about laws, it will not be as accurate as knowledge of an experienced trust administrator. By hiring a trust administrator, you will avoid making costly mistakes or being held liable for these mistakes. A trust administrator will carry on different tasks with top levels of accuracy such as the following tasks.
- Record keeping: investment made that is related to assets inserted on the trust is recorder accurately by a trust administrator, he willalso be able to discuss the results of the transactions to the beneficiary at any time.
- Assets value assessment: this task in important because it determines either the trust is liable for tax or not after deducting liabilities. The trust administrator will also be responsible for paying federal taxes after assessing the value of assets in the trust.
- Fairness: the trust administrator has another involvement in investment making. So, he will share in financial decisions. The law forces the trust administration to not taking risky decisions or investing in risky schemes and to be fair while treating beneficiaries without favoring one over another.
For those that live in central North Carolina, Alexander and Associates can not only help you create the right trust to suit your needs, but they are highly experienced trust administrators and can oversee your trust.