Whether you’re a business owner or not, it’s always important to know and understand how assets and money should be handled. Given the uncertainties of life, planning your family’s financial future is important, especially if you want to protect your wealth from risks such as lawsuits initiated by creditors and other personal circumstances. This is where the concept of trusts enters the picture.

Primarily, a trust refers to an estate planning method wherein the properties of the trustor are held by a third party, known as the trustee, for the benefit of one or two beneficiaries. However, not all people understand what this legal arrangement is all about.

Thus, if you want to get familiar with this concept, below are the things you should know about trusts:

Primarily, a trust refers to an estate planning method wherein the properties of the trustor are held by a third party, known as the trustee, for the benefit of one or two beneficiaries. However, not all people understand what this legal arrangement is all about.

Thus, if you want to get familiar with this concept, below are the things you should know about trusts:

1.A Trust is a Financial Tool

Given the definition of a trust, it’s considered a financial tool for several people due to the following reasons:

• Trusts can be used to ensure control of your assets in the event you become incapacitated due to decline in physical health or mental wellness.
  
• Trusts can be used to avoid a lengthy and time-consuming probate of your estate that may require help from a probate lawyer
  
• Trusts can be used to protect yourself from the payment of expensive estate taxes.
  
  2.There are Different Types of Trust

Depending on the type of assets you have, there are different types of trust to choose from. These can include:

• Living Trust – This type of trust becomes effective during your lifetime. This is usually established to avoid a probate proceeding.
  
• Testamentary Trust – This type of trust only becomes effective upon your death. This is also typically created in wills.
  
• Revocable Trust – This type of trust allows you to keep the control and ownership of the property in the trust and you have the option to modify its terms and conditions. However, revocable trusts don’t become automatically ineffective upon the death of the grantor. If you’re the grantor, be sure to talk to your beneficiaries regarding what to do about the trust when you die. If possible, don’t hesitate to advise them to talk to an estate planning lawyer to learn how to close a revocable trust after death. That way, you can guarantee your family’s future.
  
• Irrevocable Trust – Compared to revocable trusts, this type of trust allows you to give the ownership and control of your assets in the trust to other person, which, in turn, prohibits you from changing any terms and conditions in the trust.
  
  3. A Trust Has Four Essential Components

Unlike other estate planning strategies, establishing a trust means dealing with the following four essential components:

• Grantor – This is the person who will create a trust.
  
• Trustee – This is a person or entity that’s responsible for holding the property assets under the trust agreement.
  
• Principal – This involves the assets and all properties that you want to put in the trust account and be held by the trustee.
  
• Beneficiary – This is the person or group of persons who will get the assets placed in the trust account.
  
  
  4. A Trust Can’t Own Retirement Accounts

Whether it’s a revocable or irrevocable trust, it can’t own retirement accounts. This means that if you have retirement accounts, you can’t place them under your trust account because they become immediately subject to taxation.

However, if you own life insurance policies, nonretirement accounts, and other relevant investments such as mutual funds, you can have these assets placed under your trust accounts.

5 .Establishing a Trust is Confidential

Unlike wills, trusts are more confidential because they’re not a matter of public record. If you’re a grantor who wants to place real estate properties and other assets in trusts that don’t disclose your ownership in their titles for privacy reasons, you can rely on trusts for this purpose.

6.Creating a Trust Requires the Help of a Professional

Just like other legal arrangements, trusts can be very complicated, which is why it’s essential to ask the help of a reliable estate planning lawyer. For instance, you can hire a lawyer to advise you about how to deal with your potential tax liability and the entire implications of the asset transfer involving trusts.

Moreover, you can also work with a legal professional to help you review your trust documents and ensure they remain current and according to your express wishes.

Final Thoughts

Typically, establishing trusts doesn’t have to be difficult if you know and understand the things mentioned above. The more you familiarize yourself with the entire concept of trust, the more you can make the most out of the opportunities this legal arrangement provides to your overall estate planning journey.