The Trust Advantage: 7 Unbeatable Benefits Of Trusts That Will Transform Your Financial Life

Jun 27, 2024 | Estate Planning

Are you looking for the best and most secure way to plan your finances and shield your assets from taxes, creditors, and probate courts so that your wealth is distributed according to your specifications even after your death? If so, then you need a trust. Trusts offer numerous benefits, each of which will help you achieve your estate planning and wealth management goals.

In this article, we will explore some of the big-picture benefits of trusts, and of using them whenever and wherever they make the most sense and are most likely to achieve your goals. Trusts are designed to keep you and your wealth safe, secure, mobile, flexible, and under your direct control. You can rely on your trusts to shield your hard-earned assets and preserve your wealth for the next generation.

Discover the multitude of advantages that trusts can provide and experience the tranquility you deserve!

How Do Trusts Work?

A trust is a financial arrangement that the grantor sets up to hold assets for the benefit of another party.

If you, for instance, want to gift some property or money to your children, you can set up a trust and then transfer the ownership of that money, or property, into the trust for the benefit of your children. You become the grantor, your children, or whomever you choose to bequeath your assets, are the beneficiaries of the trust, and a trustee is the person or institution in charge of holding the assets of the trust for the benefit of the beneficiaries. The trustee is required to manage the assets and to distribute the assets in accordance with the wishes of the grantor as spelled out in the terms of the trust.

1 – Asset Protection Provided By Trusts

Estate planning almost always includes some type of asset protection. What is an asset in estate planning? An asset is anything someone owns that can be used to their benefit. It’s fair to say, by that definition, that almost everyone has assets. An estate plan typically includes the use of a trust to protect an individual’s assets, ensuring they are passed on to their loved ones as intended.

Trusts have several features that protect assets. The first is the fact that trusts can name someone other than the beneficiary to hold the assets, known as the trustee. When managing the trust’s assets, the trustee has a responsibility to exercise caution and take the beneficiaries’ interest in maintaining the trust’s value into account.

Because the assets of the trust are controlled by the trustee and not by the beneficiary, creditors of the beneficiary cannot seize the assets in the trust to satisfy a debt. Many trusts have clauses that prohibit creditors from collecting from the trust, called spendthrift clauses. These clauses are in place to prevent a beneficiary from squandering trust assets through irresponsible spending.

2 – Privacy And Confidentiality Benefits Of Trusts

This leads to the second, but no less important, advantage of a trust: confidentiality. One of the main benefit of trusts is the privacy that they afford, as opposed to wills. A will is a public document that is filed upon the death of the person who created it (called the testator or testatrix). The terms of the will, which specify how an estate is to be divided and bequeathed, are visible to all upon filing.

By contrast, a trust is a private, confidential document. No one other than the parties enjoys rights against the trust; those rights must be exercised through the grantor, and the details of the trust are not available to the general public. This confidentiality can play an important role in the affairs of those whose financial affairs and/or personal relationships they wish to keep private and not open to scrutiny by the general public.

Since the beneficiaries do not have ownership of the assets, creditors are unable to pursue the assets held in the trust. This means that the person can keep their financial affairs away from suing creditors or third parties. Without a trust, if you are taken to court in a lawsuit or to repay a debt, a creditor can access your assets. However, if your assets are placed in a trust, it can be a vehicle to protect your wealth and ensure that your financial affairs are kept private and away from court.

3 – Tax Benefits Of Trusts

Trusts can provide substantial tax benefits for beneficiaries. They can lower estate taxes by excluding the trust’s assets from a person’s taxable estate. This means the taxes on estates are reduced for future generations as well. The transfer of assets to a trust can be done without incurring taxes on the principal portion. However, it is important to note that the recipient(s) of a trust gift may be subject to taxation on any interest or dividends earned from the trust’s principal.

4 – Flexibility And Control Offered By Trusts

Flexibility and control, then, are among the major benefits of establishing trusts. Trusts allow you to specify how your property is managed and used after your death, and continue on for the benefit of future generations. They are therefore extremely flexible (compared with many other estate planning mechanisms) and can be designed to achieve whatever is allowable under the law.

Moreover, trusts are an effective way of controlling the property they contain. Through the selection of a trustee, grantors can ensure that their property is carefully managed and administered—either when the beneficiaries are incapable, or if those beneficiaries simply do not have the ability to handle it themselves—and are incentivised to act in their best interests.

Besides offering asset-management control, trusts also grant gift-distribution control, such as stipulating that assets be distributed to the trust beneficiaries at set ages (e.g., when they are 30, 40 and 50 years old) or upon achieving specific milestones, such as graduation from college or marriage. In this way, individuals can ensure their money is used in a wise and conscientious manner, which can help prevent gift-squandering by beneficiaries.

5 – Avoiding Probate With Trusts

Trusts are also commonly used to sidestep probate. Probate is the judicial procedure for the distribution of assets upon a person’s death. Probate can be lengthy, costly and public. Many people choose to use a trust to skip probate. Assets in trust no longer belong to the grantor’s estate and are therefore not subject to probate at the grantor’s death. This speeds up the distribution of assets to beneficiaries and provides greater privacy for the family.

A further benefit of using a trust to skip probate is the faster distribution of assets. Probate can take months or even years to complete. Property held in trust can be transferred to beneficiaries at a much quicker pace. Since the assets do not have to be probated, the terms of a trust document can distribute assets immediately upon the death of the grantor. Heirs receive their help when they most need it, and family members do not have as much time to squabble over inheritance.

6 – Benefit Of Trusts For Charitable Giving

Another strength of trusts is that they accomplish charitable gifts without the need to work with taxes and other paperwork following the donor’s death. Typically, after a certain amount of time—which is 15 years for federal income tax purposes—if a donor used cash for charitable work, the donor is required to file forms for any deductions made. Likewise, taxes might be owed at the time of sale if contributors who own stock in a company sell it to a foundation.

Not so when using a trust for charitable donations. This is a clear benefit, particularly in cases where donors have claimed large gifts from assets that have appreciated, like real estate. Tax discounts are given to donors at the time of gifting, and no filing is needed when property or stock is sold to a trust and subsequently appreciates in value.

Moreover, trusts are highly flexible with respect to what can be donated. The unique advantage of charitable trusts is that founders or donors have the ability to donate various assets, such as cash, securities, real estate, and other valuable items. This provides greater flexibility in how the funds can be used, as they are not limited to the specific purposes for which the charity was established.

7 – Trusts For Business Succession Planning

Trusts can also be a useful tool in business succession planning so that, upon retirement or death, ownership and control of the business are transferred to a designated successor(s) while offering the owner a certain level of control and protection over the assets of the business. Trusts can create flexibility in terms of how the business is managed and controlled.

One common obstacle to succession is the absence of a well-defined plan for the future of the business and its ownership. For example, parents often want to ensure that their children will have ownership and control of the business in the future, but they don’t want to pass it on to a child who has no desire to participate in the business. A trust can be structured to allow the assets of the business to be divided and distributed accordingly. Similarly, there might be a situation where parents want their business to continue for the sake of the children’s future, but do not necessarily want the children to be involved in the day-to-day operations of the business.

The trust can be carefully crafted to offer comprehensive protection for the business assets, shielding them from any potential claims made by creditors of the future business owners. A trust can be a useful instrument to support business succession planning if it contains explicit and detailed provisions that regulate the ownership, management, and operation of the company.

ProvenLaw: The Proven Leader In Utah Trusts & Estate Planning

You can see by now that a trust offers numerous advantages over not having one, which can leave you and your family at risk. Slightly more difficult than simply deciding to have a trust is actually creating a legally enforceable trust that provides the flexibility, control and protection you want. When setting up your trust, transferring assets to it, and making decisions about how best to safeguard your most valued possessions, you should definitely speak with a trust lawyer.

ProvenLaw is a distinguished Utah estate planning firm that has helped many clients plan their estates and create custom trusts to reflect their unique planning needs. Call us today for a free, no obligation consultation to discuss the benefits of trusts for your specific situation, to learn about your options for a trust to protect your family and secure their future, and to get started.

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