Trusts can play a critical role helping individuals protect their wealth and ensure the efficient and private transfer of assets to beneficiaries after their passing. However, because the depth of breadth of different trust instruments are so vast, individuals must carefully structure their trusts in such a way that meets their unique needs and goals.
A trust is a legal arrangement in which a person (the grantor) gives another party (the trustee) the authority to hold and manage their assets for the benefit of the grantor’s named beneficiaries. Assets transferred into and held in a trust may include cash, investments or real estate, which pass to beneficiaries outside the often lengthy, costly and very public probate process according to the terms of the trust. In fact, assets held in a trust are protected from claims against you or your heirs, who may not be adept at managing the assets and legacies they inherit from you. However, unlike a will that is subject to probate and goes into effect when an individual passes away, a trust becomes effective on the date it is established and the grantor signs the agreement.
Creating a trust is a fairly simple process, but it is one that should be undertaken with the assistance of professional advisors, including financial planners and estate lawyers, to ensure it meets your specific goals and satisfies the needs you intend. At the most basic level, trusts can either be revocable or irrevocable.
As the name implies, a revocable trust is one that a grantor may modify or even cancel during his or her lifetime. While the grantor is alive, he or she maintains control over and access to the trust assets and the responsibilities to report and pay taxes on trust income in the same way they report and pay taxes on their other sources of income. However, due to the grantor’s ownership stake in the trust, assets within a revocable trust are not protected from creditors claims. Upon the grantor’s death, the trust becomes irrevocable, and its assets pass outside of probate directly to the grantor’s named beneficiaries. At that point, trust assets may be subject to estate tax.
By contrast, an irrevocable trust is a permanent vehicle that grantors may not modify or cancel at any time. Because the assets held within an irrevocable trust are outside the grantor’s control, they are not considered to be owned by the grantor and are therefore protected from creditors’ claims against the grantor. Moreover, assets transferred into an irrevocable are not treated as a part of the grantor’s estate, thereby minimizing exposure to estate tax, or, more specifically, reducing the amount of assets subject to estate tax upon the grantor’s death.
About the Author: Brendan T. Hayes is a financial planner with Provenance Wealth Advisors, an Independent Registered Investment advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with Raymond James Financial Services. He can be reached in the firm’s Boca Raton, Fla., office at (561) 361-2001 or via email at info@provwealth.com.
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Brendan T. Hayes is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC.
Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs. PWA is not a registered broker/deal and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily those of Raymond James. 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 any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.
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Posted on March 3, 2022