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Estate Planning 101: Trusts

Many tax professionals advise their clients with regard to trusts, so it is important that every tax practitioner understand the basic rules of trust creation and governing trusts. While establishing one can be expensive and time consuming, there are many benefits to setting up a trust, and contrary to popular belief, they aren’t only for the wealthy. Haven’t worked with clients regarding trusts before? Not to worry--we’ve got you covered with the answers to a few key questions.

What is a trust?

A trust is a legal document that allows a grantor to transfer assets before and after his or her death to one or more beneficiaries. Essentially, it serves to protect and distribute the grantor’s assets as he/she desires in the event of his or her death. There are numerous types of trusts that apply to specific situations, and each can come with unique requirements depending on the wishes of the grantor.

What types of trusts are there?

Out of the many types of trusts, it is particularly important to understand the difference between a living trust and a testamentary trust. While living trusts are set up during a person’s lifetime, testamentary trusts are set up in a person’s will and are created through the will after that person’s death. Living trusts can further be divided into revocable trusts and irrevocable trusts: revocable trusts allow the grantor to retain all control of his or her assets as outlined in the trust, while irrevocable trusts mandate that the grantor relinquish that authority, placing the assets in the beneficiary’s control.

Why establish a trust?

Many believe that wealth is a prerequisite to establishing a trust; however, this simply isn’t true. If your client’s net worth is equal to or greater than $100,000, and if they have specific requests with regard to division of assets among beneficiaries after their death, then establishing a trust could be a great option for them. There are many reasons to set up a trust, including avoiding probate, providing for family after your death (and saving them time and paperwork), specifying how your beneficiaries will receive their inheritance and, potentially, reducing estate taxes.

Where can I learn more about trusts and estate planning?

Understanding the basic rules and guidelines for trusts should be on every tax professional’s to-do list, because many tax practitioners advise their clients about this topic. To learn more about trusts, basic trust terminology, and trust creation/termination, download our webinar: “An Introduction to Trusts (IEST).”

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