A trust is a helpful tool that is set up by more than just the uber-wealthy. Trusts help people manage their assets regardless of income. Even if you have not established a legally defined trust, you probably have listed a spouse or child as a bank account beneficiary.
The same principle for listing a spouse or child as a beneficiary on a bank account applies to forming a legally binding trust. You have to decide which of the types of trust do the best job of protecting your assets.
What is a Trust?
A trust is a financial tool that allows you to protect your assets while determining which of the assets and the income they generate go to which beneficiaries. As the grantor of the trust, you create the terms and conditions of the trust. A trustee, who can be you or someone else, manages the trust by following the terms and conditions established by the grantor. As the third component of a trust, the beneficiaries receive the assets placed in the trust according to the terms and conditions written into the trust.
You have two broad types of trusts: Revocable and irrevocable. A revocable trust allows you to change the terms and conditions after you form the trust. On the other hand, an irrevocable trust prohibits you from changing the terms and conditions of the trust.
Let’s discover what kinds of trust protect your assets.
Asset Protection Trust
As the name implies, an asset protection trust protects your assets from creditors and legal judgments. As a type of irrevocable trust, an asset protection trust allows you to place a wide variety of assets into the trust. You can transfer cash, stocks, bonds, and real estate. If you own a business, you have the right to place business assets into an asset protection trust. This is an especially valuable benefit of an asset protection trust because, if your business experiences financial difficulties, you can shield the business assets from creditors and legal judgments.
Not every state permits the formation of an asset protection trust. Consult with one of the estate planning attorneys at Cloud Peak Law Group to discover which state is the best to set up this type of asset-shielding financial tool.
Developed to help married couples, a bypass trust limits or eliminates the amount of money paid for estate taxes. Each spouse completes a set of estate planning documents to ensure the number of assets declared falls under the maximum estate tax exclusion established by the United States Congress. After declaring assets, each spouse then leaves the remaining assets to the other spouse. Assets left for the other spouse qualifies for a marital deduction when determining estate taxes. A bypass trust allows a surviving spouse to receive assets tax-free when the other spouse dies.
The bank account beneficiary example we mentioned above provides you with insight into what defines a Totten trust. Typically developed to avoid the time-consuming probate process, a Totten trust works well for assets such as bank accounts and a securities portfolio. However, this type of trust does not work for personal property like a car or house. To protect real property, you need to set up a specialized trust.
Creating a Totten trust requires just the completion of the paperwork that names beneficiaries.
When you hire an experienced estate planning attorney, you receive advice on the kinds of trusts that work best for your unique financial status. An estate planning lawyer from Cloud Peak Law Group can help you start a trust that offers your assets the most protection.
Schedule a free consultation with one of our highly skilled estate planning attorneys.