How Does a Trust Work?

You’ve worked hard to accumulate financial assets. You’ll need them to support your retirement. However, what if you also want to pass them on to loved ones? Perhaps you have considered a trust. How does a trust work? Trusts are used to pass assets to the next generation and have many benefits, says a recent article titled “Passing assets through a trust—What to know” from the Daily Bulldog.

“Funded” trusts don’t go through probate, which can be time-consuming, costly, and public. When filed in the courthouse, your last will and testament becomes a public document. Anyone can see it, from people wanting to sell your home to thieves looking for victims. Trust documents are not public, so no one outside the grantor and the trustee knows what is in the trust and when the trustee will make distributions. A trust also allows you to be very specific about who will inherit assets in the trust and when.

An estate planning attorney will help establish trusts, ensuring they comply with state law. There are three key questions to address during the trust creation process.

There are several critical roles to familiarize yourself with when considering how does a trust work. The person who creates the trust is the grantor of the trust. They name the trustee—the person or company charged with managing the trust’s assets and carrying out the instructions in the trust. Who will serve as a trustee? You might choose a loved one. However, if they don’t have the knowledge or experience to manage the responsibilities, you could also name a corporate fiduciary, such as a bank or trust company. These entities charge for their services and usually require a minimum.

How does a trust work: When will distributions be made? As the grantor, you can decide when assets will distribute and the distribution amount. Many of these decisions concern how responsible you feel the beneficiaries will be with their inheritance. You might want to keep the assets in the trust until the beneficiary reaches legal age. You could also structure the trust to make distributions at specific ages, i.e., at 30, 35, and 40. The trust could hold the assets for the beneficiary’s lifetime and only distribute earned income.

How does a trust work: What is the purpose of the trust? The grantor also decides how the trustee should use trust assets to benefit beneficiaries. The trust could designate broad categories like health, education, maintenance, and support. The trust can be structured, so the beneficiary needs to ask the trustee for a certain amount of assets. Other options are to structure the trust to provide mandatory income once or twice a year or tie distributions to incentives, such as finishing a college degree or purchasing a first home.

There are many different types of trusts. You’ll want to choose the right one to protect yourself and your loved ones. An estate planning attorney will explain the types of trusts and which is best for your unique situation.

Reference: Daily Bulldog (Dec. 24, 202) “Passing assets through a trust—What to know.”