Trust Basics: How Trusts Can Help You Accomplish Your Estate Planning Goals

Whether you’re seeking to manage your own assets, control how your assets are distributed after your death or plan for incapacity due to illness or accident, trusts can help you accomplish your estate planning goals.

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 officer 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 be in charge of 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 plans.

While a will may designate an executor of your estate, a trust involves the trustor (you) selecting a trustee, or a fiduciary required to handle assets placed in the trust in keeping with your wishes and your beneficiary’s best interest. Depending upon the type of trust created, your assets may be transferred to beneficiaries outside of probate.

For many people, the idea of working with a corporate trustee (such as RBFCU Trust Services) is more attractive than simply creating a will. Why? Because they can build a relationship with a trust officer at an established organization who can serve as a resource, provide access to knowledgeable attorneys and other estate professionals and support beneficiaries for years to come.

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.

How a Trust Can Help

Trusts are often used by trustors (sometimes called 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?

  • 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 may pass to beneficiaries outside of probate after the trustor’s death or disability, when the successor trustee steps in to manage the transfer of assets.
  • Testamentary trust — Created after the trustor’s passing, this type of trust is tied to a will, with a trustee managing assets for beneficiaries.
  • Irrevocable trust — Managed by a trustee, this is a trust through which trustors intend to give up their ownership rights to all assets placed in it.
  • 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.

For more information about trusts and related estate planning strategies designed to protect your legacy, contact RBFCU Trust Services at 210-637-4117.

RBFCU Trust Services is a division of RBFCU Investments Group LLC. RBFCU Investments Group LLC is a wholly-owned subsidiary of RBFCU Services LLC. RBFCU Services LLC is affiliated with Randolph-Brooks Federal Credit Union (RBFCU). Trust services available through Members Trust Company, a federal thrift regulated by the Office of the Comptroller of the Currency.

Trust and Investment products are not federally insured, are not obligations of or guaranteed by the credit union or any affiliated entity and involve investment risks, including the possible loss of principal.

This is for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant.