Trusts are accounts that act as legal entities. These accounts are used to transfer wealth and assets from one person to another. The person who owns assets (grantor) puts them in the trust and gives control to another person (trustee) to manage the assets. The person benefiting from these assets is known as the beneficiary.
This article will talk about trust funds, their benefits, and what you need to set up one for yourself.
Types Of Trust Funds
There are two types of trust funds that you can open, and these can change during the grantors’ lifetime or after their death.
Revocable Trust Account
As the name suggests, the assets in the trust account can be revoked at any time. Since the possession of the assets is still under the grantor’s control, the country’s revenue agency can include the trust account assets as a taxable estate in this condition. In most cases, a revocable trust is transferred to an irrevocable trust after the grantor’s death.
Irrevocable Trust Account
This type of trust transfers ownership from the grantor to the trust. Since the assets are no longer under the grantor’s name, they will not be liable to pay income tax on their assets. Instead, the trust will pay the taxes until it is transferred to the beneficiary.
How To Setup A Trust
Setting up a trust account can be a tedious process that requires several documentation and registrations with revenue agencies such as the IRS. However, these steps can help you understand what needs to be done to open up a trust account.
1. Collect critical details and information of the grantor, trustee, and beneficiary 2. Take the collected information to a financial advisor and attorney to seek professional help 3. With the help of professionals, draft a trust agreement that specifies all the aspects of the trust account
4. Register the trust with your respective government revenue department by obtaining a tax identification number
5. Transfer the assets into the created trust account
6. Ensure that your trust is compliant with the legal guidelines
7. Invest the assets intelligently. Recruit the help of a financial advisor
8. Follow a proper procedure and file your tax returns on an ongoing basis
Benefits Of A Trust
There are several reasons why a person might open a trust account. Although some people are under the impression that a trust account can only be created to transfer the wealth of an individual after their death, there are other benefits. Some of these benefits are as follows:
ξ Control assets and secure the interest beneficiaries
ξ Provide for minors who require the assistance of an adult to manage their money ξ Minimize income and estate taxes
ξ Provide expert management of estates
ξ Minimize the accumulation of probate expenses
ξ Maintain the privacy of assets
ξ Protect business and real estate holdings
Wrapping Up
Creating a trust account can be a great way to protect your assets and ensure that it goes to the right person. Opening a trust account may take some time and extra documentation, but the benefits of the creation make it worth it.
While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
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