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TOPIC OF THE MONTH – UNDERSTANDING TRUSTS

Trusts are powerful tools for safeguarding your loved ones’ interests, preserving wealth and managing tax liabilities.

Trusts: situationally complex, undeniably powerful – and perhaps an important part of your financial planning toolkit. Trusts can help you preserve your wealth, manage your tax liabilities, organize your assets, and support your loved ones’ interests.

If you have children, trusts can help safeguard your intentions. A marital trust can continue to provide your spouse with the necessary income from a brokerage account while managing complex family dynamics. A trust can also help you pursue your philanthropic goals alongside secondary retirement goals.

In addition to supporting specific goals, trusts can help you realize certain tax benefits by effectively reducing the size of your estate, helping you make the most of your retirement dollars.

Understanding trusts
A trust is a legal entity in which the grantor charges a trustee with using assets transferred to the trust for the benefit of a third party, known as the beneficiary. A grantor may be a parent, the asset may be a brokerage account, the trustee may be that parent’s trusted sibling, and the beneficiary may be the grantor’s children.

In a common arrangement, the trustee can be charged with keeping the portfolio invested while using it to provide monthly income to the beneficiary until the beneficiary reaches a specific age, at which time the assets are transferred to the beneficiary.

These structures are flexible, and the range of eligible assets is broad. In some cases, the grantor, trustee and beneficiary can be the same person. Another common arrangement is to have a corporate trustee, a company charged with overseeing the trust. Once created, trusts can typically be maintained with minimum of annual effort by the grantor.

The problem with probate
A significant benefit of trusts is that it that they can make assets available to loved ones immediately instead of at the conclusion of the lengthy probate process in the event of the grantor’s death. Further, trust assets, unlike probate assets, do not become part of the public record, protecting your beneficiaries from prying eyes.

Common types of trusts

Living trusts
Living trusts are established by an individual and go into effect during their lifetime. Living trusts are often used as part of a retirement plan for their potential tax benefits and an estate plan for ensuring the grantor’s wishes are honored.

• Revocable trusts can be changed or canceled at any time and are commonly used in estate planning to spare loved ones the challenges of probate.
• Irrevocable trusts cannot be changed, but transferred assets are removed from the grantor’s ownership. In addition to their use in estate planning, these can help protect assets or provide tax benefits to the grantor.

Generation-skipping trusts
With this trust arrangement, you can provide your children income from the trust asset while preserving the principle for a grandchild, transferred at a specific date. This can be a tax-efficient way of providing a long-appreciated gift to a grandchild.

Marital trusts
Marital trusts are often used by blended families to honor the grantor’s wishes regarding distribution of assets to a surviving spouse and children from a prior relationship. Martial trusts may grant some tax benefits, depending on the value of your estate.

Special needs trusts
Special needs trusts can provide a beneficiary with support without exceeding the net worth and income limits for receiving public assistance. These are often used to provide continuing support to a child after a parents’ death, or to support semi-independent living situations.

Life insurance trusts
With life insurance trusts, the trustee is empowered to purchase a life insurance policy on the life of an individual – typically the grantor. In the event of the individual’s passing, the insurance proceeds can be used to pay taxes and other expenses, with the remaining proceeds distributed according to the grantor’s wishes. As the life insurance policy is not owned by the individual, it is not considered part of the taxable estate.

Charitable trusts
Charitable trusts are a deep topic unto themselves, but generally they help a grantor support a charitable organization and another goal, such as by providing retirement income to the grantor from an annuity.

Is a trust right for you?
Trusts can be useful for investors at every stage of life, but particularly for retirees to help preserve their assets, reduce tax liabilities and ensure their intentions are honored. Please don’t hesitate to reach out if you have any questions about trusts or how they may help enhance your financial plan.

Raymond James does not provide tax or legal advice. Please discuss these matters with the appropriate professional.

Any opinions are those of The Wealth Advisory Group of DiLauro Wracher & Thomas and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. This information is intended to be educational and is not tailored to the investment needs of any specific investor. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Prior to making an investment decision, please consult with your financial advisor about your individual situation.