In modern parlance, a “trust” has the connotation of extreme wealth, of an upper-crust legal refinement that most people in the middle-class wouldn’t be able to enjoy. But in reality, a legal trust is a powerful tool available to any one of us that truly wants to set one up.
The only question remaining is: why set up a trust?
The answer is simple: trusts are remarkable financial tools. They help you avoid more estate taxes (as you’ll learn here), they help you control your money, and they help you to provide for the care of loved ones who might not be able to take care of themselves.
Let’s take a closer look at the art of the trust and figure out how you can start taking advantage of them to ensure that more of your property and money is left behind responsibly – and so that your family members can enjoy as much of your success as legally possible.
The Role of Trusts in Estate Taxes
It’s important to point out that having a trust will not actually reduce the rate of your estate taxes. Saving money on taxes isn’t done by creating a trust and then suddenly paying a smaller rate – the estate tax rate is the same for everyone, provided they meet the federal minimum estate value.
How, then, do trusts save estate tax money?
One of the most popular ways to save money on estate taxes is to technically reduce the value of your estate. If you have an estate, for example, that can be valuated at near the federal estate tax minimum, then reducing the value of your estate by moving money into other places can actually save you money by simply getting your estate to lower in value. This is not a common strategy, however, as no one can predict when you’ll pass on.
Trusts can save some estate tax money by reducing the size of the estate (since the money technically belongs to the trust and not your estate) and therefore reducing the amount of money that is exposed to the estate tax rate. But it’s important to remember that trusts might face their own tax issues after you pass on, which is why it’s usually a good idea to consult an attorney whenever you want to create a trust.
Understanding the Living Trust
Many people then turn to the “Living Trust” in an effort to save money. But what exactly is a living trust and what can it do for you?
A living trust is not very complicated – in fact, it simply refers to a trust that you create while you’re still alive. If you create a trust and fund it, with that money to be signed over to a beneficiary upon your passing, then you’re using a living trust to your full advantage.
Of course, the questions about trusts and living trusts involve people. Who will be the beneficiary of a trust? Many parents will set up a living trust for the financial support of a developmentally –challenged child, for example. Others will do it to ensure that their money will be securely transferred to their family members upon their passing.
Living trusts can have enormous benefits because you can still retain control over them while you’re still alive, thus giving you a great degree of say-so when it comes to the ultimate destiny of your finances.
How to Set Up Trusts
The paperwork to establish a trust should be done with the cooperation and guidance of a trusted estate planning attorney – or at least a trusted general attorney who has some experience in these matters. They’ll often get the right paperwork for you and make sure you understand all of the roles that a trust requires people fill.
If you’re still confused about how trusts can help you save money on estate taxes, it might be a good idea to start with the basics – learn about the estate tax and what it applies to. It will also be a good idea to learn how Wills work so that you can get started on drafting a will of your own when necessary. Then you can return to the idea of setting up a living trust with the person of your choice listed as its beneficiary.
Will a living trust solve all of your problems? Of course not. But it’s still a powerful tool that gives you a greater degree of control over your money – and when it comes to estate planning, that’s enough to give you the peace of mind you’ve been searching for.