Trusts are also an excellent way to avoid a public and potentially lengthy probate process (the legal process by which the validity of a will is established); instead, your beneficiaries benefit from a private process and may gain access to their assets more quickly than they would with a will.

There are different types of trusts to consider before setting one up.

Types of Trust

Trusts come in two types: revocable and irrevocable. Revocable trusts give you control over your assets while you are alive, and you can alter or terminate the trust whenever you want. 

Irrevocable trusts, on the other hand, cannot be changed. They are often used to safeguard asset distribution, such as donating art to a museum or auctioning jewelry. 

Within those two types of trusts, there are also special trusts:

• Marital Trust– When one spouse passes away, assets in the trust are for the benefit of the surviving spouse. Assets in this trust escape Estate Tax for first spouse who passes away however are subject to Estate Tax at death of surviving spouse.
• Bypass Trust– When one spouse passes away this trust can be funded with the then current estate tax exemption amount.  A trustee manages the assets and there are limitations on how the surviving spouse can benefit.  Assets are not subject to Estate Tax at the death of the surviving spouse.
• Charitable Trusts– A charitable trust allows certain assets to be given to specific charities. Different types of Charitable Trusts provide for when a charity receives income or assets. 
• Generation skipping Trust– If someone would instead pass on their estate to their grandchildren over their children, they can form a generation-skipping trust. This type of trust can be beneficial to the grantor for Tax purposes.
• Grantor Retained Annuity Trust (GRAT)– a GRAT trust only lasts a specific period. These trusts are commonly used to minimize taxes on financial gifts. 
• Life Insurance Trust– This trust identifies the recipient of a life insurance policy payout.
• Special Needs Trust– These trusts can help financially support a special needs dependent. The money in the trust pays for medical and day-to-day care for these kinds of dependents while allowing the beneficiary to obtain Government assistance. 
• Spendthrift Trust– This type of trust allows you to specify when and how beneficiaries can access your estate.  Most all types of trusts include a Spendthrift provision. 
• Testamentary Trust– Established as part of a Will and becomes effective when the individual passes away.  Assets for this type of trust are included in the probate process and therefore privacy is not always guaranteed.
• Totten Trust– A Totten Trust lets you deposit money into a bank account. When you pass away, the money is passed on to the beneficiary on the account.  The more modern term for Totten Trust is ‘Payable on Death’ (POD)

Trust Roles

1. Grantor: The grantor is the person who creates the trust. (Also referred to as Trustor or Settlor)
2. Trustee: The Trustee is the trust manager and carries out the grantor’s wishes as outlined in the trust documents. 
3. Beneficiaries: Beneficiaries are the individuals or entities named in the trust who will receive the benefits or assets from the trust. 
4. Successor Trustee: A Success Trustee is a backup trustee designed to step in and assume the trustee’s responsibilities if the original trustee is unable or unwilling to continue serving the trust. 
5. Trust Advisor: In some trusts, a trust advisor is an individual or entity who has the authority to oversee the trustee’s actions, protect the interest of the beneficiaries, and ensure the trust is being followed in accordance with the grantor’s intentions. It is possible for a Trust to have both a Trustee and Trust Advisor.

Benefits of a Trust

Control of Wealth: You have complete control over the terms of your trust, controlling when, where, and to whom your estate is passed on.

Protection of Legacy: A trust can help protect your estate from your beneficiaries, who may need more time to mature or develop wealth management knowledge\skills.

Privacy and Probate Savings: A trust allows estates to be passed outside of probate and remains private; it also reduces the amount lost to court fees and taxes.

How to Form a Trust

Forming a trust involves several steps. Here is a general overview of the process:

• Book an Appointment with a Trust Advisor to discuss your specific goals and circumstances.
• Choose the type of trust.
• Identify the assets to be transferred.
• Choose a trustee.
• Work with an attorney to draft the trust document.
• Fund the trust.

Trust and Estates

A person may set up a trust as part of their estate plan to transfer assets to their beneficiaries more efficiently and protect them from creditors or other risks. A trust can be used with a will or as a standalone document, depending on the person’s goals and circumstances.

A will is created to provide instructions on how someone’s estate and custody of minor children, if there are any, should be managed after death. Their wishes and instructions are detailed in a will, and they name a trustee or executor that they trust to fulfill their dying desires. A will may also indicate whether a trust should be created upon their death.

Final Thoughts 

Trusts are powerful tools that can be used to manage assets and distribute wealth according to an individual’s wishes. A trust may help avoid probate, ensure that assets are transferred promptly and efficiently and reduce or eliminate estate taxes.

There are many different types of trusts, each with unique advantages. Trusts can help individuals protect their legacy, maintain control over their wealth, and achieve their financial goals during their lifetime and beyond.

By taking the time to understand trusts and how they can be used, individuals can ensure that their wishes are carried out according to their desires.

Are you ready to set up a trust? Please schedule an appointment with one of our wealth management advisors today.

For more information about the wealth management division, visit our website, Wealth Management – Financial Planning from Texas Regional Bank. 

*Investment and insurance products: NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE

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