If you are new to estate planning, you may have heard people talk about trusts but be unsure of what one is. You might even think only people with sizeable wealth need them. The truth is, a trust can be a useful option for anyone, regardless of the size of their estate.
A trust is a way of protecting assets. One person, known as the trustor, gives another person or entity known as the trustee, the right to hold those assets for the benefit of someone else, known as the beneficiary.
Here are some of the reasons you may find a trust useful:
- It ensures your assets are distributed as you wish: You set the beneficiary, and you decide how the assets are passed to them. It can be useful when you want to avoid giving someone a large chunk of money all at once. For instance, you could stipulate that your child does not receive the assets until they turn 21-years-old. Or you could define they receive a monthly or yearly allowance rather than a one-time payment.
- It prevents creditors from touching your assets: If you die with debts, your creditors will soon get wind of your passing and may file a claim against the estate. However, they cannot touch anything that you have put in specific forms of trust.
- It can reduce taxes and fees: Anything in a trust is technically not part of your estate as it no longer belongs to you. Thus, it can skip probate and get into the hands of your beneficiaries quicker and with fewer fees and taxes.
There are various types of trust, which can serve different purposes. Seek legal help to understand more.