When it comes to estate planning and developing a strategy to distribute assets after your death (or in the event of incapacity), trusts can prove extraordinarily useful.

The power of trusts rests in their versatility — many types of trusts exist, each designed for a specific purpose. Although trust law is complex and establishing a trust requires the services of an experienced attorney, mastering the basics isn’t hard.

In fact, becoming acquainted with trust basics can help you begin to identify if you need one, how it could help you and when you should reach out to a trust administrator for guidance and support in crafting one.

What’s the difference between a will and a trust?

Most people are familiar with the concept of a will, or a legal document that spells out how your assets should be distributed upon your death. It can also identify who will oversee managing your estate and even clarify whom you wish to be a guardian for your minor children.

A trust, however, can be used to manage your assets after death or during your lifetime. Like a will, a trust can be part of your overall estate plan.

While a will may designate an executor of your estate, a trust involves the trustor (you) selecting a trustee, a type of fiduciary¹ required to handle assets placed in the trust. Depending upon the type of trust created, your assets may be transferred to beneficiaries outside of probate. For anyone hoping to avoid an extended public probate process, a trust may hold greater appeal.

Who helps administer a trust?

For many people, the idea of working with a fiduciary (such as RBFCU Trust Services) to administer a trust is more attractive than naming a family member or friend to serve as their successor trustee.

Why?

Because when they create (and, eventually, regularly update) their trust, they can build a relationship with a trust administrator at an established organization who is required by law to put the interests of beneficiaries first.

Trust administrators can also serve as a resource; provide access to knowledgeable attorneys and other estate professionals; and support beneficiaries for years to come.

Trust basics: How a trust can help

Although we may be inclined to think of trusts as being something only used by affluent people, the reality is that people of more modest means may find them useful, too. It simply depends upon your goals, objectives and needs.

Trusts are often used by trustors (also referred to as grantors, donors or settlors) to:

• Manage, reduce or mitigate estate taxes
• Possibly shield assets from potential creditors
• Avoid the expense and delay of probating your will
• Preserve assets for your children until they are grown (in case you should die while they are still minors)
• Create a pool of investments that can be managed by professional money managers
• Set up a fund for your own support in the event of incapacity
• Shift part of your income tax burden to beneficiaries in lower tax brackets
• Create a mechanism to share assets in a domestic partnership
• Provide benefits for charity

The type of trust used, and the mechanics of its creation, will differ depending on what you are trying to accomplish. In fact, you may need more than one type of trust to accomplish all of your goals.

What are the different types of trusts?

There are many types of trusts, each suited to the trustor’s needs and goals. Here are some of the most commonly created trusts:

• Revocable living trust
  Created during the trustor’s lifetime, this type of trust requires the trustee to manage assets, oversee investments, monitor growth, pay taxes and keep records while being accountable to the trustor and beneficiaries. This type of trust can be modified (within the limits of the law) and the assets may pass to beneficiaries outside of probate after the trustor’s death.
• Testamentary trust
  A testamentary trust is created through a last will and testament and is funded after the testator's death.
• Irrevocable trust
  An irrevocable trust cannot be changed. If created during the trustor's lifetime, the intent is usually for asset protection.
• Special purpose trusts
  Typically used to transfer assets to a designated charity (“charitable trusts”) or to provide financial support for family members with disabilities (“special needs trusts”), special purpose trusts offer trustors an opportunity to provide for organizations or people near and dear to them.

Again, these are the common trust types, but each trust is a distinct reflection of the trustor and their unique needs, goals and beneficiaries.

In other words, each trust has a purpose spelled out thoughtfully by the trustor and then carried out by the trustee on their behalf.

The takeaway

Whether you are looking to protect your assets, pay for your child’s tuition or support a loved one in need of care, there is a trust designed for you. Accomplishing your personal goals and intentions with a trust depends largely on who will act as the trustee.

RBFCU Trust Services is here to help. We provide professional trust administration services to carry out your decisions while keeping your beneficiaries top of mind at all times. Schedule your no-cost, no-obligation initial consultation today.