My students ask me all the time what a trust is and “do I need one?” The answer is generally yes but with one caveat, “not yet”
What in the world is a trust? Think of a trust as a holding pen, a place where you put your assets before they are released to the
people or organizations that you designate to eventually receive them. A trust is a legal entity and so are you.
Because you and the trust are separate legal entities, anything you transfer from you to the trust becomes property of the trust.
The trust then holds the property for your benefit, or for the benefit of those whom you designate.
A trust consists of four components:
The grantor–who creates the trust.
The beneficiaries- who receive the benefits (income and/or principal) of the trust. The grantor can also be a beneficiary.
The assets- which are the properties transferred to the trust.
The trustee- who is the person or entity that manages the trust’s assets and distributes the property according to terms established by the grantor.
The grantor can also be the trustee, at least while the grantor is alive.
Trusts can be set up while you are alive (the legal term for this is intervivos), or they can be established upon your death by your Will
(known as testamentary). Revocable trusts can be changed or revoked by the grantor. Irrevocable trusts cannot be changed after they are created.
Most people do not consider the importance of this crucial estate planning tool.
Suze Orman is a rather prolific financial advisor who has done a good job analyzing the necessity of establishing
a trust. She created a questionnaire a few months ago that you can use to help you determine if you need a trust along with your coach.
According to Suze, if you answer Yes to any of the questions, then you should seriously consider establishing a trust.
Do you have a financial interest in a business?
Do you have beneficiaries under the age of 25?
Do you have children with special needs, meaning they will never be able to financially support themselves due to a physical or mental disability?
Are you in a second or third marriage?
Are you on bad terms with any of your heirs?
Are any family members physically ill?
Is any family member developmentally disabled?
Is any family member in need of creditor protection?
Is any family member bad at managing money?
Do you own real estate of any value in more than one state?
Is your estate worth close to $1,000,000?
of course their can be some more exceptions. Make sure you speak with your coach whether a trust is something you need at this time.
No comments yet.