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Five Surprising Benefits Of Establishing a Trust

Trust funds

Trust funds can be a very confusing topic to try and understand if you are not legally minded. In this article, we outline the surprising benefits of trusts, and also some of the drawbacks of trust, and find that for most people, trust is a valuable asset structure they should consider in their estate planning.

What is Trust?

A trust is a legal entity that can be created and used to hold assets and allocate them and the income from those assets in a determined way.

You create a trust deed with the help of a qualified lawyer, like GSRM, who can help you structure the trust in the appropriate way to achieve your desired outcomes.

Trusts can be set up in different ways to serve different purposes so it’s important that you clearly communicate to your lawyer what you want your trust to achieve so they can ensure that it is structured in the appropriate way.

Tax Efficient

Trusts can be a very tax-efficient way to transfer property and assets from one person to another. They are commonly used in conjunction with wills as a way for someone to pass on their assets to their beneficiaries following their death.

Many asset transfers following someone’s death attract different forms of a state tax, but trust structures often allow for the transfer of assets following death to happen with a lot less tax needing to be paid.

For this benefit to be realized the trust must be set up in the right way, so ensure you liaise with a legal professional when doing this.

Skip Probate

Assets that are controlled by your will often need to go through a probate process to be verified by a court and to ensure they are distributed as you had planned.

This process can be lengthy and also expensive. When somebody passes away their will becomes a public record, which is then analyzed and actioned following their death.

Trust deeds are not processed in the same way.

The content of a trust deed stays private, and the trust can instigate the distribution of assets following someone’s death without having to go through the probate process.

Greater Flexibility

If you create a revocable trust, you have the ability to change that trust in the future if the situation changes. Whether you want to add or remove assets from the trust or change the nature of the trust disbursements, you can do that without having to create a new trust.

Greater Personal Protection

One of the biggest highlights and positives of a trust is the asset protection that it can offer. If somebody sues you personally they are not necessarily able to make claim on assets that you hold in a trust structure.

As such many people see trusts as a safer way to protect their assets, given the increased amount of litigation taking place in our society.

Name A Successor Trustee

As the trustee of a trust, you can structure the trust and include instructions about who the successor trustee should be. If you are concerned about who will be managing your affairs when you do pass away, being able to name a successor trustee can provide you some comfort in knowing that the person or persons you select will be the ones carrying out your wishes. On your behalf.

Can Help With Illness and Disability

Trusts are more flexible in what they can do. Where a will can only discharge your assets upon your death, a trust can be designed to discharge assets upon your significant illness or disability.

This gives you the option of looking after your loved ones if you end up severely impaired, without them having to wait until your actual passing, to receive their dividends and disbursements from the trust.

Downside Of A Trust

Given that a trust is a legal document, there are some costs in getting a trust set up. These costs can be a barrier to entry for many people on lower incomes, or people with fewer assets. 

But given that the benefits of trusts are for those with higher incomes and assets, this is not a significant issue.

Maintaining a trust will also create additional paperwork for the trustee in that any changes they make with adding or removing assets from the trust all require official legal paperwork to be completed. This paperwork is not necessarily complicated, but it must be done otherwise you risk the trust not functioning in the way you intend upon your passing.

Final Thoughts

For most people, especially those with a significant amount of assets, a trust is a very efficient and very prudent way to manage your estate. From the tax benefits to the asset protection, and the increased control you have, spending a small amount on the right paperwork to get a trust set up will pay dividends for the beneficiaries of the trust and peace of mind for the trustee.