Everything You Need to Know About Trusts

Written by Fraser Stewart
Reading time 4 minutes
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How can you reduce estate tax, leave money for dependents, and control the uses and terms for your property after your death? The answer is a trust. It allows you to set terms for how and when the property can be used and who can use it.

What Is a Trust?

A trust is a legal vehicle for an asset to be given to beneficiaries under certain terms. The reason why you are able to set terms and why it is more tax-efficient is because it does not transfer ownership to the beneficiary. The beneficiary receives all the income benefits of the asset under the terms that you set.

Who Is Involved in a Trust?

There are a number of parties involved in a trust:

Why Should I Create a Trust?

One of the most common uses of a trust is to set money aside for minors that will be released to them once they reach a certain age, for higher schooling, or to purchase a house. This ensures the money is properly managed and held for them, rather than relying on other family members to do the right thing. If the trustee is good at their job, the money in the trust may also grow by the time it is released.

Another common reason for creating a trust is for the family home. If you own a house that you live in with your partner, you may put the house in a trust. This way, you can stipulate that your partner continues to live in the property until they pass away, and then it will be released to the beneficiaries. By putting the house in a trust, you can ensure that your partner is not kicked out of their home. And that upon their death, the house will be released to the beneficiaries. Your partner will not be able to sell the property or will it to someone else as your estate owns the property.

A third common reason is to create an income source or maintenance fund for a dependent. Whether you have named a family member as a guardian or have chosen a suitable assisted living facility, by providing the money required to care for the dependent, you can have peace of mind. This ensures there is money to cover day to day living expenses as well as any medical care that may be necessary.

Other reasons you may decide to create a trust include:

Types of Trusts

There are different types of trusts that are built for very specific situations. They have different tax structures and legal requirements.

So which type of trust is best for my needs? Well, you should outline who you want to be a beneficiary and how you want to support them. Then, you should discuss your trusts with an attorney or someone who can help you figure out the tax implications of the different types of trust.

Who Should I Choose To Be the Trustee of A Trust

You need to pick someone you trust to be the trustee. Depending on the type of trust you set up, they may need to make important decisions that will affect the trust and the beneficiaries.

The trustee will also have a number of legal and tax responsibilities while managing the trust. Many people have attorneys as a trustee, so that is something you should consider too.

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