Trusts: vehicles to carry out your legacy

A trust can be a highly useful estate planning vehicle, designed to help you to preserve the wealth you’ve worked diligently to build while setting a plan in place to carry out certain elements of your legacy, from giving to your favorite charity to funding a grandchild’s education.

A trust is a legal agreement between two parties: the person who creates the trust, also known as the grantor, and the trustee. It is really a set of instructions you give to your trustee to carry out on your behalf for your beneficiaries. Almost any type of asset can be placed in a trust, including cash, stocks, bonds, insurance policies, real estate and collectibles.

While a will allows you to distribute your estate as you choose at your death, trusts can work to your benefit during your lifetime. Furthermore, using a trust instead of a will enables you to bypass the often-lengthy probate process and maintain strict privacy.

There are several different kinds of trusts designed to help you accomplish specific estate planning goals:

• Ensuring a lasting legacy for your family
• Establishing a fund for your own support
• Protecting your assets from considerable tax liability
• Caring for a loved one with special needs
• Ensuring your philanthropic goals are met

Living trusts

A living trust, as the name implies, is a trust that is created during one’s lifetime. It offers the assurance of knowing that loved ones are provided for as well as protection to beneficiaries whose judgment and financial acumen are of concern.

In the event of your incapacity or death, a successor trustee you choose – either an individual or a corporate trustee – can immediately step in to manage the trust and its assets without court involvement. Unlike a will, a living trust avoids probate and does not become a matter of public record. It offers protection to beneficiaries who may require guidance.

A living trust can be revocable or irrevocable:

• A revocable living trust allows the grantor to retain total control over it by retaining the power to cancel or change the trust’s terms or to terminate it at any time.
• An irrevocable living trust, mostly used to provide tax savings and protect assets, cannot be changed or canceled.

Marital trusts

A marital trust is an arrangement that allows a married individual to put some or all property into a trust with the spouse as the beneficiary. If your estate is over the federal exemption for estate taxes, a marital trust can help to make the most of tax exemptions for both you and your spouse. It can also be helpful in planning the distribution and protection of assets within a stepfamily should you wish to leave your assets to your biological and adopted children.

Generation skipping trusts

A generation skipping trust is often the best option when your children are financially comfortable, and you want to provide for your grandchildren and great grandchildren instead of bequeathing all of your assets to your surviving spouse and children.

Special needs trusts

A special needs trust is designed to provide financial security, benefits coordination and life enrichment for a beneficiary with special needs or a disability. At its core, a special needs trust is designed to preserve a beneficiary’s eligibility for certain governmental or private benefits programs while allowing the beneficiary to benefit from trust assets in such a way as to supplement, but not supplant, those benefits. Without a special needs trust, the extras that can enrich you or a loved one’s life and make it more enjoyable may have to be limited or eliminated.

Life insurance trusts

A life insurance trust allows the trustee to purchase a life insurance policy on the life of the person who creates the trust, or the grantor, with the trust itself as the beneficiary. After the grantor’s death, the trust may use the proceeds from the life insurance policy to make loans to or purchase assets from the estate, thereby providing funds to pay taxes or other expenses owed. The remaining proceeds are then distributed to the beneficiaries, according to your instructions specified in the trust.

Charitable trusts

Charitable trusts can help you support the organizations or causes you care most about, create a reliable income stream and pass on wealth to your loved ones in a tax-efficient way.

A charitable trust can be a remainder trust or a lead trust:

• A charitable remainder trust allows you to support a favorite charity and still receive an income stream from the trust for a period of years or for life.
• A charitable lead trust pays an annuity to a charity for a set number of years, then pays the remaining assets to a named beneficiary upon your death.

Trusts can give your estate plan the strong foundation it needs. The wide variety of trusts available, however, makes expert advice essential.

Please be aware that there may be substantial fees, charges and costs associated with establishing a charitable remainder trust.

This material has been created by Raymond James for use by its financial advisors.