Arizona Attorney on Why You Should Establish a Trust
Has the thought of creating a trust ever crossed your mind? If you’re like many people, the answer is probably no. Even those who do estate planning establish a last will and often wait until they are ill or have reached their golden years. Despite the common misconception that trusts are for the elderly or wealthy, there are many reasons why you should consider creating one now.
Why have a trust?
An article by financial magazine Kiplinger provides an in-depth overview of how trusts work and how you can benefit from them. When a person passes away, determining how his or her assets will be distributed can create conflict among relatives or other parties close to the deceased person. Having a trust in place can not only protect your assets after your passing but can also ease any future financial or legal challenges that may arise.
In addition, trusts may be established for the following reasons:
- To prevent poor management of assets among beneficiaries
- To prevent creditors from having access to assets
- To manage assets that aren't easily divisible
- To manage business assets for succession
- To invest in life insurance and collect tax-free proceedings on behalf of beneficiaries
- To fund investments that could be passed along to beneficiaries
- To mitigate estate and gift taxes
What a trust is responsible for
There are two parties involved in a trust: a settlor and trustee (also called a fiduciary). When an agreement is established, a trustee is responsible for:
- Accepting, managing, and protecting assets
- Directing assets based on settlor's instructions
- Distributing income and principal only to parties allowed in the trust
- Selecting investments -- including purchasing and selling assets -- with reasonable care
- Avoiding self-dealing or other activity that could create a conflict of interest
- Preventing any breaches of duties to the settlor or beneficiaries
Choosing a trust
Before establishing a trust, it's important to consider who you would like to bear the responsibility. You may start with a revocable trust (also called a living trust), which isn't active until you pass away or become incapacitated. This means that you can change it at any time by adding or removing property and changing beneficiaries. For example, if you chose your spouse as your trustee and primary beneficiary, assets may be distributed to your children and/or grandchildren by way of the trustee.
In contrast to a revocable trust, when establishing an irrevocable trust, it's important to understand that your decision can't later be changed. Any assets you include in your trust are no longer yours.
While deciding how your assets will be managed after your death may be difficult and overwhelming, the experienced Arizona estate planning attorneys at Brown & Jensen can help you weigh your options. We handle all types of trusts and can help you find the best plan that fits your needs. Don't wait to get started. Contact us today to learn more.