Your Weekly Law Clinic
With Dr. George Ogunjimi
A TRUST fund is an estate planning tool that holds property or assets for a person or an organization.
Trust funds are sometimes simply referred to as “trusts.” They can hold a variety of assets such as money, real property, stocks, bonds, a business, or a combination of many types of properties or assets.
Establishing a trust fund involves multiple parties: the grantor, the beneficiary or beneficiaries, and the trustee.
Trust funds can have more than one beneficiary. They’re managed by the trustee who has a fiduciary duty to act in the best interests of the grantor and beneficiaries.
Trust funds can take many forms and they can be established with different stipulations. They can be revocable or irrevocable. Some offer tax benefits and financial protections as well as support for those involved.
Estate planning is a process that involves determining how an individual’s assets and other financial affairs will be managed and how any property they own will be distributed after they die.
Property can include any bank accounts, investments, personal property, real estate, and/or life insurance. Wills are the most common estate planning tool but trust funds are also popular legal entities.
Laws governing trust funds can vary depending on the country of residency and creation.
The grantor generally creates an inheritance arrangement that’s carried out after they’re no longer mentally competent or alive.
As the appointed fiduciary, the trustee is responsible for carrying out the interests and wishes of the grantor.
This can include allocating living expenses or even educational expenses such as private school or college expenses and/or paying a lump sum or transferring property to the beneficiary or beneficiaries after death.
Trust funds provide certain benefits and protections for those who create them and their beneficiaries.
Irrevocable trusts can protect assets from creditors in the event they decide to pursue the grantor for unpaid debts.
Trusts avoid the need for probate after the grantor’s death, which is necessary to distribute a decedent’s property when they leave a last will or have no estate plan at all.
Irrevocable trust funds can reduce or eliminate the amount of estate taxes owed after the grantor dies.
Trusts can be named as the beneficiary of an individual retirement account (IRA) but they’ll be subject to accelerated withdrawal requirements and short-circuit spousal inheritance provisions.
Revocable Trust Funds vs. Irrevocable Trust Funds
All trust funds are either revocable or irrevocable. Both are referred to as “living” trusts when the grantor creates them during their lifetime.
A “testamentary” trust is one that’s created after the grantor’s death, usually under terms left in a last will. It’s irrevocable because the grantor is no longer living to make changes to it.
Revocable Trust Fund
The grantor can change the terms of a revocable trust at any time or even dissolve and undo the trust completely if they choose.
Assets funded or placed into a revocable trust can be transferred to any number of designated beneficiaries after the grantor’s death or even during their lifetime.
The primary benefit of a revocable trust is that the assets avoid probate after the grantor’s death. This leads to the quick distribution of assets to the named beneficiaries.
The terms of a revocable trust aren’t made public like those of a last will so an estate can be distributed with a high level of privacy.
Grantors can act as their own trustees when they form a revocable trust or they can appoint someone else to the role.
They can name a successor trustee to take over management of the revocable trust after their death when the assets are typically distributed to beneficiaries and the revocable trust is dissolved.
Irrevocable Trust Fund
An irrevocable trust fund is very difficult if not impossible to change or dissolve. Undoing it or its terms typically requires the unanimous consent of all beneficiaries.
This makes them virtually immune to estate taxes and creditor claims. The grantor of a revocable trust can take back assets they’ve placed into the trust at any time so they’re still considered to personally own them.
This isn’t the case with an irrevocable trust. The grantor permanently gives up control and ownership of the assets and money placed into the trust although they set the terms as to the beneficiaries who will receive them and when.
Several types of trust funds are included under the umbrellas of revocable and irrevocable trusts.
They often have different rules and stipulations depending on the assets involved and the beneficiaries.
A tax or a trust attorney may be your best resource for understanding the intricacies of each of these vehicles. This isn’t an exhaustive list.
A Living Trust is a legal document created during a person’s lifetime that places assets into a trust & specifies how they are to be distributed after their death.
Protection From Beneficiary Issues
Assets held within a Discretionary Living Trust won’t form part of your beneficiary’s own assets, meaning if they get into debt, are made bankrupt or go through divorce, the assets within the Trust will not be assessed as being owned by them.
Avoid Probate
The probate process can be long and arduous, especially if a property is left empty and can’t be distributed until the courts say so. With a Living Trust, your property can be immediately accessed by your Trustees to manage the property and distribute it according to your wishes with less hassle.
Protect Your Loved Ones
Make sure that your future generations are taken care of for years to come. These Trusts are no longer just for the rich. With a Living Trust, you can make sure that assets can be kept for your future generations for up to 125 years, helping provide support and the best start in life.
Key Takeaways
A trust fund is a legal entity designed to hold and manage assets on someone’s behalf, usually with the help of a neutral third party.
Trust fund parties include a grantor, beneficiary or beneficiaries, and a trustee.
The grantor who creates the trust fund sets the terms for how assets are to be held, gathered, and distributed.
The trustee manages the fund’s assets and executes the grantor’s directives. The beneficiary receives the assets or other benefits from the fund.
Trust funds can be revocable or irrevocable and several variations can exist within these categories for specific purposes.
Dr George Ogunjimi, Juris Republic can be reached via: jurisrepubliclegal@gmail.com
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