Trusts can play a critical role in helping individuals protect their wealth and ensure the efficient and private transfer of assets to beneficiaries after their passing. However, because the depth and breadth of different trust instruments are so vast, individuals must carefully structure their trusts to meet 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. Once in the trust, the assets 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 relatively simple process. Still, it should be undertaken with professional advisors, including financial planners and estate lawyers, to ensure it meets your specific goals and intended needs. At the most basic level, trusts can either be revocable or irrevocable.
As the name implies, a revocable trust is one that grantors may modify or even cancel during their lifetimes. While grantors are alive, they maintain 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 grantors’ ownership stakes 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, irrevocable trusts are permanent vehicles grantors may not modify or cancel at any time. Assets transferred into the trust are removed from grantors’ control and their taxable estates. Consequently, the assets are protected from creditors’ claims against the grantors, and the trusts can help to reduce 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 (PWA), an Independent Registered Investment advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with PWA Securities, LLC (PWAS). He can be reached in the firm’s West Palm Beach, Fla., office at (561) 361-2001 or info@provwealth.com.
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Brendan T. Hayes is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, 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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Updated on February 2, 2024