The savings accumulated from hard-earned money is the essence of one’s life. You would want their best possible handling, no matter how meager they are, as that is what you have been working for your entire life. Estate planning is an essential step in this regard that would allow you to manage, preserve, and distribute your assets in an organized way. There are many tools for this purpose, and one of them is setting up a trust fund.
You might have a perception that trusts are for wealthy people with several assets for the next generation. But this is a general misconception. Anyone can set up a trust with a moderate income. It is a vehicle to your assets until their transfer to the intended persons.
What matters is the purpose of setting up a trust fund instead of your estate value. Wise estate planning is about exploring multiple tools that would benefit you in the long run. Here are some things you should know about trust funds, regardless of how wealthy you are.
Reasons to Set Up a Trust Fund:
There are multiple purposes a trust fund can serve. Have a look at them to see if you can benefit from them.
- Securing the Future of Your Children: As parents, creating a kids trust fund might be the best decision you can make for your children. It will protect your estate from the attack of third parties and make sure they are safely transferred to your children when they come of age. Trust funds will also come to the rescue to avoid unwanted claims on the assets.
- Reducing Taxation: You can reduce your tax liability by transferring the funds into an irrevocable trust. Once you have set up an irrevocable trust, you can not amend it without the beneficiary’s permission. Since you won’t be a legal owner of the transferred assets anymore, the trust funds will not be a part of your taxable estate.
- Avoiding Probate: A living trust, also known as the revocable trust, would enable the smooth transfer of your assets without getting tangled in the complexities of a probate court. However, in this case, you will be responsible for paying the taxes since you will be the one receiving the income.
- Qualifying for Governmental Benefits: Government grants certain benefits to individuals with low net income. If your beneficiary is disabled and you wish the benefits to continue after the inheritance, you can establish a special needs trust for your loved one.
Main Components of a Trust:
Three main components bring about the development of a functional trust.
- A grantor is the one who transfers the assets to a trust fund. The transferred funds can be in any form. They can be jewelry, bonds, businesses, or even direct cash. You will be the grantor if you are the one transferring the funds.
- A beneficiary is the one who will receive the assets of the trust fund and has the legal right to do so. A beneficiary can be your loved ones or even a noble cause of charity.
- A trustee is the one who is responsible for the trust funds until their transfer to the beneficiary. Make sure to decide wisely in this regard and choose a trustworthy person to look after your assets in a trust fund.
How to Setup a Trust Fund?
- Choose the Type of Trust: Have complete knowledge about the type of trust funds and the purposes they serve. Also, decide if you need a revocable trust an irrevocable one and the pros and cons of each. Then, choose what suits you the best.
- Clarify the details of the Trust: Make a basic outline of who the beneficiaries and trustees would be. Then decide how much you will fund the trust and in what form you will transfer your assets. Also, design the stipulations of the trust fund, i.e., how long will the trust last and at what conditions the transfer of assets is to take place. It can be after the beneficiaries reach a certain age or complete a certain level of education.
- Make your Trust official: You can do this by hiring an Estate Planning attorney, but this might be heavy on your pocket. Alternatively, you can do it yourself by taking help from online tools. But opt for this method only if you have some expertise on such matters.
- Transfer the Funds: Open a bank account with the same name as your trust, and transfer the assets. You can do this by providing a large sum in a go or gradually over time. It is up to you. You will have to give the details of trustees as well.
Estate Planning is essential for handling your assets delicately and avoiding the hassles and complexities of inheritance proceedings. So, if you have never considered the option of establishing a trust fund due to your moderate savings, it is time to reconsider your options.