Trusts offer benefits now, and in the future

While most people know that a will is an important part of an estate plan, fewer may be aware that trusts can also be a valuable component of estate planning. A well-structured trust can allow for a number of advanced tax and estate-planning strategies, and can provide several benefits when assets are transferred during one’s lifetime. There are two main types of trusts, in­ter vivos trusts and testamentary trusts. 

An inter vivos, or “living” trust can provide continuing financial security to individuals and their loved ones, even if a future health issue prevents an individual from managing his or her own affairs. It can also ensure that wealth is ultimately transferred to bene­ficiaries in a cost-efficient manner.

An inter vivos trust provides ex­plicit direction to the trustee on how to manage the trust funds in the event that an individual becomes incapacitated by an illness or injury. This type of trust can provide you, your spouse, your family, or any other loved ones with the financial support they need. Ultimately, the trustee will distribute assets to the beneficiaries. Because the trust can avoid the probate and executor fees associated with a traditional will, the total value of one’s legacy can be significantly enhanced. And, since you can specify how and when your beneficiaries will receive their inheritance, you can ensure that your wealth continues to be responsibly managed beyond your lifetime.

A testamentary trust can provide continuing financial security for your loved ones through the ongoing professional management of your assets, the security of creditor protection, and a responsible and tax-efficient ap­proach to distributing wealth. 

A testamentary trust is created through your will to direct exactly how your estate’s assets will be managed and distributed to beneficiaries. Beneficiaries do not receive a single lump-sum inheritance through such a trust. Rather, the trustee will distribute funds to them in a tax-efficient manner according to the individual’s specified amount and timing. For example, you may wish to ensure that your spouse or a dependent child will re­ceive regular income payments for life. Or you may wish to protect young children or grandchildren from receiving more money than they can responsibly handle all at once. Often, testamentary trusts are used to provide for the long-term living, medical, and other expenses of adult children with special needs, such as a disability or substance dependency.

Trusts are sophisticated arrangements involving a number of tax and estate-planning issues, and they must be properly structured in order to meet estate-planning goals. Talk to a financial advisor before choosing to in­clude trusts as part of an estate plan. 
—Trixie Baker 
MD Physician Services