As a prudent investor, you understand the importance of making wise financial decisions to protect your assets and secure your legacy. One of the most powerful tools that can help you achieve these goals is to set up a trust.
Trusts offer a range of benefits that can provide peace of mind and financial security for you and your loved ones. Below we explore the 7 most compelling reasons why you should consider establishing a trust as part of your overall wealth management strategy.
First and foremost, setting up a trust allows you to protect your assets and ensure that they are distributed according to your wishes, even after you’ve passed away.
By creating a trust, you can designate specific beneficiaries and outline how your wealth should be managed and distributed. This level of control can provide peace of mind knowing that your hard-earned assets will be safeguarded and passed on to your loved ones in a structured and organized manner.
Trusts can also offer protection from creditors, lawsuits, or divorce settlements. This is especially true for irrevocable trusts, which effectively remove the assets from your ownership. By placing your assets in a trust, you can shield them from potential claims, ensuring they are preserved for your beneficiaries.
Trusts offer a high level of privacy and confidentiality.
Unlike a will, which becomes a matter of public record upon your passing, a trust allows you to keep your financial affairs private, this includes the nature and value of your assets and the identity of your beneficiaries. This can be particularly helpful for individuals who value discretion and wish to keep their estate planning details confidential.
Depending on the type of trust you establish, you may be able to minimize the overall tax burden on your estate. For example, irrevocable trusts can help reduce estate and gift taxes, and grantor-retained annuity trusts (GRATs) can minimize income taxes.
There are also unique tax rules that can help you save on taxes, like the 65-day Rule. Section 663(b)(1) of the Internal Revenue Code states that distributions made during the first 65 days of any taxable year can be credited on the last day of the preceding year. This is especially helpful as it allows the fiduciary to more easily shift the taxation of income earned by the trust to the beneficiaries.
When you establish a trust, you can outline detailed instructions for how and when the assets within the trust are to be managed and distributed to the beneficiaries.
Specific conditions and timing for distributions can include age-based distributions, milestone-based distributions, and staggered distributions, meaning instead of a lump sum distribution you can arrange for distributions in stages, such as a portion at age 25, another at age 35 and the remainder at age 45.
Unlike a trust, wills typically result in a lump sum distribution of assets once probate is complete (more on that below). While you can make specific requests, you have less flexibility in controlling how and when beneficiaries receive their inheritance.
One of the most compelling reasons to set up a trust is to avoid the probate process. Probate is the process of settling a decedent’s estate. It is normally done in the county where the decedent’s assets were held and can be a lengthy, expensive, and very public process. By placing assets in a trust, those assets avoid probate court and are more easily accessible to those you care about. This means quicker access to assets for your loved ones and less hassle during an already difficult time.
Avoiding probate can save on legal fees, court costs, and other expenses commonly associated with the probate process.
Another compelling reason to set up a trust is peace of mind when special needs planning. A special needs trust ensures that a person with disabilities has the necessary financial resources to maintain their quality of life without jeopardizing eligibility for necessary government benefits like Supplemental Security Income (SSI) and Medicaid.
A special needs trust can be tailored to meet the specific needs of the individual, helping to cover expenses that are not provided by government benefits. For parents or caregivers of a special needs family member, a special needs trust is a valuable tool to ensure your loved one is financially protected now and in the future.
If you are a business owner, consider setting up a trust as part of your overall business succession plan. A trust allows the business owner to specify how the business will be managed and transferred upon your retirement, incapacity, or death. This ensures your wishes are followed precisely and that key business stakeholders have access to key business assets or operations in the event of a transition.
A trust can be particularly important in avoiding business disruptions. The trust document can (and should) include provisions for professional management of the business if the beneficiaries or designated liaisons are unprepared or unable to take over. This can help continuity of operations and profitability during the transition period.
Setting up a trust is a smart decision for those who want control of their assets now and the ability to leave a lasting legacy for future generations. If you are interested in exploring the benefits of establishing a trust as part of your wealth management strategy, we encourage you to connect with a qualified estate planning attorney and an experienced financial advisor, like Prudent Investors. Our team of advisors will provide personalized guidance and support to help you work through the complexities of trust planning and implementation.
Take your first step toward securing your financial future by reaching out to us to schedule a complimentary consultation today. Your legacy deserves the protection and peace of mind that a trust can provide.
Investment advice through Prudent Investors, an SEC-registered investment advisor. This blog is general communication being provided for informational purposes only. This information is in no way a solicitation or offer to sell securities or investment advisory services. It is educational in nature and not to be taken as advice or a recommendation for any specific investment product or investment strategy. This does not contain sufficient information to support an investment decision. Any investment or investment strategy mentioned may not be suitable for all investors or in their best interest. Statistical information, quotes, charts, references to articles or any other quoted statement or statements regarding market or other financial information is obtained from sources which we believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. All rights are reserved. No part of this blog including text, graphics, et al, may be reproduced or copied in any format, electronic, print, et al, without written consent from Prudent Investors. Prudent Investors does not provide legal or tax advice. Please be advised to consult with your investment advisor, attorney or tax professional before making any investment decisions.
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