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When to Create a Trust: New Assets & Accounts

If you’ve recently accumulated new assets or accounts, it’s time to reevaluate your estate planning needs. Is a Trust right for you?

To better understand when to create a Trust and how it can affect new assets and accounts, it is important to understand what creating a Trust can accomplish for those creating one in the first place.  

“How do I figure out if I need Trust?"

This question just might be the most common one asked of an estate planner. Falsely, folks often assume that having a Trust is only for the very wealthy, or that just a simple Will might do the trick. However, many people do not realize the benefits of a Trust-based Estate Plan– even for those with modest or moderate assets, if done right, a Trust can be a game-changer.  

All too often, people tend to underestimate how many assets they have accumulated over their lifetime. Many also have not seriously considered how best to pass them down to others after they die. We all want to assume we will have very long lives, and that there will be plenty of time to think about Wills and such. The uncertainties that life can throw at us are not the kind of thoughts we want racing through our minds. Nevertheless, avoidance can cause us to put off necessary preparations and safeguards that can protect our families and our assets. 

Benefits of Putting Your Assets in a Trust

Creating a Trust is one way to prepare for the future and the unexpected. A Trust allows you to make personal choices to determine the best way to manage and distribute your assets, including newly acquired assets and accounts as well long-standing assets and accounts. A Trust can allow you to determine in your lifetime - in the here and now, how best to protect and distribute your assets and accounts after you pass.

Keep Your Estate Private

Keep in mind, when your assets are transferred to your Beneficiaries through a Will, your Will then becomes public record having  first passed through your state's probate court. In addition to the costly legal fees and delays that probate proceedings can incur, any individual can legally access public records and view the details of your Will. If privacy is a concern, consider setting up a Trust so your assets can be transferred directly to the Trust while you are still alive, then passed directly to your Beneficiaries after you die. This method can keep your assets and your private matters protected, out of the courts, and away from prying eyes. 

Appoint a Trustee

Trusts are managed by their Trustees. A Trustee can be any named individual(s), bank, or other financial institution, or organization. The Trustee, as named by the Grantor, has the legal responsibility to put the interest of the Trust above all else by dutifully executing the directives set forth in the Trust agreement set up by the Grantor.  Some of the Trustees obligations are to protect and preserve the Trust’s property and assets, distribute assets to Beneficiaries, asset and property management, oversee bank accounts, file tax returns, and pay bills and expenses.

Many Grantors appoint their Executors to also act as Trustees. The fiduciary standard requires that the Trustee manage all the funds and assets of the Trust with the utmost care. Naming a Trustee is an important decision a Grantor must make because the role of Trustee is a trusted one that will require a considerable commitment of time and knowledge. Before choosing a Trustee, it would be wise to discuss the intricacies with any Trustee candidate to ensure that they are agreeable with taking on the responsibility of carrying out the directives as you have laid out within your Trust documents. 

Different Types of Trusts

Something else that further mystifies Trusts for some people is just how many different types there are. So let's take a quick look at two of the most popular and  frequently-used Trusts to try and get a handle on which type best fits your estate planning circumstances. And for a more in-depth look, be sure to check out our full guide on the "Different Types of Trusts."

It should be noted that the laws and rules governing Wills and Trusts may vary from state to state. Therefore, considerable attention must be given to the matter in order to assure that if you do create a Trust, it will be in full compliance with the specific municipality in which it is executed.

Trusts are generally classified as revocable or irrevocable. Below is a brief explanation of the these two types of Trusts:

  • Revocable Trusts can be changed or even canceled at any time by the Grantor.  This type of Trust is actually owned by the Grantor and becomes irrevocable upon his or her death. Until that time, any revenue that is generated from the assets in this Trust becomes taxable as income to the Grantor. Having a Revocable Trust allows you to add, use, or remove assets as you normally would. Additionally, some assets, like a retirement account, will pass directly to the Beneficiaries.

  • An Irrevocable Trust is as it sounds– written in stone.  Changes can only be made with permission of the Beneficiaries of the Trust. Relinquishing control, assets and accounts are transferred out of the Estate, to your beneficiaries also opens the door to a variety of tax benefits. The trade-off is inflexibility of the Irrevocable Trust for asset security and tax benefits. This type of Trust is especially handy with more complex or extensive Estates. Despite this inflexibility, Irrevocable Trusts offer asset security and tax advantages, making them an attractive type of Trust for people with large or complex estates.

Whether you choose to set up a Revocable Trust or an Irrevocable Trust, the tax implications for either type can vary and should be carefully considered when deciding which kind of Trust you wish to create. Knowing how and when to create a Trust to include new assets and accounts can help protect your assets, and avoid the time and legal expenses associated with probate court proceedings.

So if you've inherited or accumulated new assets or accounts recently, now might be a good time to consider setting up a Trust. Below are some examples of common "life triggers" that should make you reevaluate your estate planning needs:

  • Inheriting assets

  • Buying a house or property

  • Having or adopting a child

  • Receiving a large sum of money

  • Change in marital status

These are just a few examples of life events that might prompt you to create or update your Trust. Of course, there are many other circumstances in which you might want to consider creating or updating your Trust documents.

If you've recently experienced a life event that has made you reassess your estate planning needs, then it might be time to consider creating a Trust-based Estate plan.

At Trust & Will, we’re here to help you keep things simple. You can create a fully customizable, state-specific Estate Plan from the comfort of your own home in just 20 minutes. Take our free quiz to see where you should get started, or compare our different estate planning options. Get started today!

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