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Study: My Understanding of Funds

What Is A Trust?

A trust is a legal and written agreement between a settler (person creating the trust) and the trustee. The role of a trustee in a trust is to manage a settler’s assets on behalf of the settler’s heirs. In a trust, there are rules and regulations that are necessary for the security of a grantor’s assets and estate plan.

Over the past years, many trusts have exhibited common characteristics. For instance, trusts can name a single or multiple trustees and a number of recipients. A trustee is responsible for overseeing and executing the arrangements in a trust. The recipients of a trust’s assets wealth are given proceeds in the present or the future.

Trusts have traditionally been used by the wealthy to conceal and distribute their wealth to their offspring. Currently, even ordinary people are making use of trusts to protect their assets and estates because of the benefits experienced by the use of trusts.

The two primary types of trusts are revocable and irrevocable. Trusts that are revocable can be altered. They are flexible and have a lesser degree of asset protection. Irrevocable trusts are rigid. The guidelines in an irrevocable trust are permanent. There are many types of trusts; living trust, life insurance, limited term, privacy trust and testamentary trusts.

The living trust is the most common type of trust utilized and rolls out within the lifetime of a settler. Their benefits include the reduction in the estate tax, probate evasion and maintenance of property management when a grantor is incapable or dies.

Life Insurance trust has the most favorable schemes when it comes to estate planning and asset protection. They help to shield an estate from high tax. This is achieved by keeping an individual’s life insurance policy free from the estate tax, making the entire amount of the life insurance policy available to the beneficiaries.

Limited term trusts are designated to trustees for a specific number of years. After a term elapses, all the property in a trust is returned to the settler. This type of trust allows the assets of a trust to be protected, but accessible to a settler if he wants them again.

The privacy trust helps to keep wealth confidential. A grantor’s bank and brokerage accounts, rental properties, family home and any interest in other entities are hidden successfully by a proper privacy trust.

A testamentary trust does not take effect until a settler dies. Usually, they are part of a deceased settler’s will. An importance of testamentary trust is to safeguard the interests of children from another marriage or a surviving spouse. Also, they limit access to benefits of a grantor’s wealth to persons under an age specified by the grantor.