By taking a look at the probate process, it becomes more useful for many individuals to set up a trust for the passing of funds to family members. Probate can be a lengthy and involved process to properly pass assets to beneficiaries. There is a great deal of paperwork and timelines to understand – rather than endure the probate process, many families choose to set up a trust.
What is a trust?
A trust is provides control over how the beneficiary uses or applies the funds in an estate. Rather than leave it up to a beneficiary to decide what happens with a large sum of money, a trust can ensure the funds are used solely for the purpose designated by the grantor, i.e. college tuition or donation to a charity.
Many choose to take advantage of a trust to ensure that funds reach a specific charitable organization. It is also helpful in mitigating taxes, planning for special needs, or holding funds for minors. Whatever is important to the individual and relevant to the surviving family’s purposes can be included in a trust.
What types of trusts are there?
The parties involved are known as the Grantor, Trustee and the Beneficiary. Types of trust include charitable trusts, revocable and irrevocable.
- Charitable trust: this trust is created to benefit a charitable organization and can have tax benefits.
- Revocable/Irrevocable trust: can be changed or revoked at any time or the opposite, the trust can be deemed irrevocable or unchangeable.
- Grantor trust: a grantor trust designates the Grantor as the owner of the trust for tax purposes.
What are the benefits?
In a word: control. When an estate goes through probate, the family and heirs are all involved in a legal process to determine who gets what. Rather than leave that up to the legal system, a trust provides a comprehensive manner to distribute money.
Even if you do not have a large estate, having a trust creates a simpler process for beneficiaries and reduces the amount of in-fighting that often occurs during probate.
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