Financial MattersTrusts–How They Work And What They
Do
Trust. Whenever you have a
relationship with someone, you're trusting that the person
in question will be honest and fair with you—whether you're
making a purchase from a local merchant, hiring someone in
your business, or simply dealing with family, friends, and
neighbors on a regular basis. And, typically, in these types
of relationships, you know that the word "trust" implies,
both trusting others and being trusted yourself.
But when it comes to the word "trust" as
used in financial-planning matters, many people are unfamiliar
and inexperienced. They've probably heard the word used and
they probably have a vague idea of what a trust does, but they're
not sure how a trust fits into their financial picture. With
this in mind, this article will attempt to take a closer look
at trusts in general—what they are, how they work, and
what they can do for you.
What Is a Trust?
Basically, a trust is a legal relationship in
which you, as grantor (or creator of the trust), transfer property
to a trustee (an institution, for example) for the benefit
of one or more beneficiaries. The trust document, drafted by
your attorney, sets forth your desires as to the duration of
the trust, the powers and duties to be given the trustee, the
time and manner of the distribution of the trust income and
principal, and the rights of the beneficiaries. You give the
trustee legal ownership of the trust property for the trust
term. The trustee is legally bound to manage, invest, and disburse
that property in the manner you describe in the trust document.
Types of Trusts
Put simply, there is no such thing as a standard
trust. Instead, every trust is tailor-made to fit the financial
needs and goals of the grantor. Trusts thus come in several
varieties. For instance, a trust may be testamentary (created
by the grantor under his or her will) or living (created by
agreement during the grantor's lifetime). Furthermore, a living
trust may be either a revocable trust (a trust which can be
altered, amended, or even terminated—with all trust property
returned to the grantor–at any time) or an irrevocable
trust (a trust that cannot be changed).
In addition, a trust may be created for any number
of beneficiaries (including the grantor himself) and may provide
for just about any method of trust property distribution that
the grantor desires. (Many grantors typically choose to provide
that trust income be paid to one beneficiary for his or her
life, with the remaining trust property to be paid to another
beneficiary or beneficiaries when the income beneficiary dies.)
What a Trust Can Do for You
Trusts have many uses. For example, you can create
a trust:
As a "pourover" vehicle for your
estate assets, designed to hold and manage your property
for the benefit of your heirs after your death.
As a receptacle for the life insurance proceeds
to be collected upon your death.
For the professional management of your investments,
such as stocks and bonds, real estate, etc., during your
lifetime.
As a means of providing for your child's
education or for the care of a handicapped dependent.
For use in conjunction with your retirement
planning.
As protection against the mismanagement or
nonmanagement of your assets in the event you become temporarily
or permanently unable to manage them yourself.
As a tax-savings device.
In sum, a trust is an extremely flexible financing-planning
tool, and, as such, can be set up to meet your individual
objectives, whatever they may be. Remember, before making
any financial decisions, it is best to consult with a qualified
advisor or advisors specializing in the field in question.
Our Security Mutual Life
Representatives, working in conjunction with your other
professional advisors, can be instrumental in helping you
plan for the best financial future for your family. Please contact
us if you have any questions or are in need of planning
assistance.(Legal Notice)
