��Ѩ��Ƶ

A trust is a fiduciary relationship in which a grantor (also known as a��trustor��or a��settler), gives another party known as the��trustee��the legal right to hold assets for the benefit of a��beneficiary��who will ultimately benefit from the trust assets.

A trust is created by the��grantor. The grantor writes the rules governing how the trust is to operate, and gives instructions to and appoints a trustee. The grantor also names the trust��beneficiary. If the trust is revocable, the grantor can change the rules of the trust at any time. If the trust is irrevocable, the grantor can’t make changes to the rules. Revocable and irrevocable trusts each have advantages and disadvantages, including income tax and estate tax implications.

When creating the trust, you (as the trust grantor) appoint a��trustee. The trustee’s role is to follow the rules laid out by the grantor on how to manage trust assets, when to distribute assets, how much to distribute and to whom to distribute trust assets. The trustee is also responsible for keeping records of the trust and filing annual trust income tax returns.

The grantor can name any number of individuals or entities as��trust beneficiaries. They can be family members, friends or charities – anyone you want, in any combination. Typically, the trust beneficiaries are lineal descendants in succession (children first, then grandchildren) or charities that the grantor cares about. The trustee is instructed not to distribute assets to individuals that are not named beneficiaries (children’s spouses) or entities that are not named beneficiaries (children’s creditors). This language protects trust assets from a divorce or a creditor of a beneficiary (e.g. a beneficiary other than the grantor).

In addition to naming the beneficiaries, the grantor can state what each beneficiary is to receive out of the trust. This is usually described as the��income��(interest and dividends that the trust earns) and the��principal��(initial trust funding amount plus capital appreciation). The grantor can state a beneficiary is only entitled income or principal or both.

Now you know the foundations, but you may still be wondering why you should create a trust. There are several potential advantages to setting up a trust. First, it allows you to have ongoing professional management of your assets, while still providing flexibility for how you use and distribute these assets. Depending on the type of trusts you create, you can detail specific parameters for how and when assets are distributed to beneficiaries. Trusts may also provide certain tax benefits and can help avoid probate costs.

Below are common types of trusts and how they are used in estate plans:

A living trust is designed to help ensure that assets are used for the benefit and welfare of the grantor during life, and to keep assets out of probate upon the grantor’s death. Revocable trusts commonly contain language to help reduce the impact that federal or state estate tax will have on a married couple’s combined estate.

As the name suggests, a grantor can make any changes to the trust at any time, and because of this, all assets titled to the trust are considered to be owned by the grantor. The grantor will usually serve as the trustee and the grantor is also the beneficiary of this trust.

A successor trustee is named to manage the trust if the grantor becomes incapacitated or dies. This successor trustee must follow the instructions left by the grantor when making distributions for the grantor’s benefit or to the next level of trust beneficiaries.

If you are concerned about a family member who has a disability that limits his or her ability in any way, you might want to consider a special needs trust. This trust provides financial support to a person who is unable to manage his or her own financial affairs. Special needs trusts are also structured in a way that will allow the beneficiary to qualify for governmental benefits (such as medical and housing benefits) that he or she might be eligible to receive.

Instead of leaving an heir a large sum of money that he or she may quickly squander, you might consider placing that inheritance into an irrevocable spendthrift trust. The trustee would then distribute the inheritance to the heir later, perhaps when the heir reaches a certain age, or in the form of an income stream over time, or for specific expenses, such as for college or medical expenses, or to buy a home or start a business. Assets that are in this type of trust are not subject to the creditor claims, or divorce proceedings, of the beneficiary.

For high-net-worth individuals, owning life insurance as part of your estate plan is often a wise move, but��owning life insurance��in your own name��can be a big mistake – because the death benefit is subject to estate taxation for the owner. To solve this problem, have an irrevocable life insurance trust own the policy. Instead of paying for the insurance premium directly, you’d give that money to the trust beneficiaries by placing that money in the ILIT on their behalf. The trustee would use this money to pay the insurance premium. The ILIT could be the beneficiary of the insurance policy, and your heirs could be the beneficiaries of the ILIT.

An additional benefit of an ILIT: Instead of beneficiaries automatically getting the insurance proceeds immediately upon your death, you can instruct the trustee to distribute the money to the heirs more slowly (see spendthrift trust above).