While you may strive to live life to the fullest and enjoy being prosperous, “You can’t take it with you”, as the saying goes. When it comes to your life’s work and wealth, have you ever wondered about the best way to secure your legacy and how you want the people and causes you love and care for most to continue to benefit from it? To define what your legacy means, consider establishing a trust.
Trusts can be revocable or irrevocable, and the benefits they provide include creditor protection, maintaining privacy, and tax advantages. Oftentimes, trusts are associated with negative stereotypes (we’ve all heard the term “trust fund baby” used to refer to a slacker living off family money). However, the reality is that they are widely misunderstood as an available tool for the protection and transfer of assets.
By solving financial issues and managing challenges related to the transfer of your wealth and assets, a trust can serve as an effective and flexible tool to honor your wishes and support your loved ones when you are no longer here. It can enable you to continue generously giving back and solidify the financial well-being of your descendants, allowing memories created with family and friends during your lifetime to be passed on in remembrance.
It is worth pointing out that trusts aren’t just for ultra-wealthy families. Even if you have no complex holdings, a trust might make sense if you:
- have special needs children who will require long-term care as adults;
- are a business owner interested in implementing a buy/sell arrangement; or
- want to set up a legacy of continuing donations to charitable organizations
to name just a few of the more common reasons.
San Diego Estate Planning
San Diego Estate Planning
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What You’ve Built
Although you can’t take it with you, you absolutely can make it last. But building a legacy demands thoughtful planning and execution. Placing wealth in a “trust fund” – technically a contract to manage investments and/or distribution of assets under that contract, not a financial account – requires three components:
- Grantor | The individual who transfers assets into the trust
- Beneficiary | Any individual(s) or institution(s) who receives assets/money from the trust.
- Trustee | The individual or corporation who administers, invests, and makes distributions to beneficiaries in accordance with the trust document. (Trusts can have more than one trustee.)
The ability to make changes to the trust document depends on whether it’s created as “revocable” or “irrevocable”. A revocable living trust lets the grantor make changes without typically offering tax or asset protection advantages to the grantor during their lifetime. It can be used to avoid probate, for incapacity planning, and to keep assets in further trust for beneficiaries upon the grantor’s passing.
Upon the grantor’s death, the revocable trust becomes irrevocable. The terms of the now irrevocable trust allow for the future management and distribution of assets for the beneficiaries. You may also choose to establish an irrevocable trust during your lifetime. Doing so can minimize certain tax liabilities, offer asset protection from future creditors, and keep assets in the trusts for family members and/or charities, or other estate planning goals you deem necessary.
The choice of a trustee can be crucial, given what’s at stake – even if it’s not always immediately applicable. For example, you can name yourself and/or your spouse as the current trustee(s) as a simple start for a revocable trust.
Looking ahead to when you are no longer around to serve as trustee, you may want to consider a corporate trustee or an experienced professional with a solid reputation, since an irrevocable trust usually involves a higher level of sophistication in accounting, tax planning, and decision making. Prior to selecting a trustee for an irrevocable trust, give careful consideration to who can best serve your needs in managing the assets held, as well as those of the trust’s beneficiaries.
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You may hold onto pictures in your mind of what you want your legacy to look like and how you can establish and protect it for generations to come. In creating a trust, there will be a number of strong advantages, which include:
- Privacy | Assets held in trust typically remain confidential whereas a conventional Last Will and Testament becomes public record upon death if probate is required.
- Creditor Protection | An irrevocable trust may protect the assets from creditor claims as an independent entity. However, assets in a revocable living trust remain subject to the claims from your creditors since they are still considered your property.
- Tax Advantages | To help lower estate tax liabilities imposed by state and federal governments, assets can be placed in an irrevocable trust. Generally, they no longer count as part of your taxable gross estate.
- Charitable Giving | Flexible charitable-giving options are another benefit trusts can offer. For instance, by structuring and funding a type of charitable remainder trust that is irrevocable, income distributions will be paid to your family for a certain length of time and then the remaining assets will be paid to a charitable organization you designate as a beneficiary. You get to claim a charitable income tax deduction in the year you fund it, while also providing income for your family members.
- Asset Distribution | It’s not always simple to transfer assets to family and relatives after death. Placing assets in a trust and purchasing assets that the trust owns enables you to strategically leverage and divide the total value of assets neatly for the beneficiaries.
Securing Your Legacy
Securing your legacy involves much more than investing wisely. It’s essential to determine what your legacy means to you and to your family and to start taking action toward achieving these goals through estate planning. When is it too late for an estate plan? Don’t fret. As long as you are still breathing and are of sound mind, you have time to plan.
To provide continuity in reaching the financial goals you envision for your family, your wholly owned business, or philanthropic legacy for many years to come, a trust can be a valuable tool in your estate planning. Hatley Law Group can connect you with estate planning resources to help you look at the options and determine which might be the best fit for you.
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