What Is A Trust? What Benefits Does It Offer Me?
A trust is a contractual arrangement between people that allows one person to hold property for the benefit of a third person. Trusts date back to early British contractual times.
In present day, trusts are unique in the estate planning world because there is something called a revocable trust, which is a special kind of trust that allows both the person giving the property and the person receiving the property to be the same as the person who is benefiting from the property. Therefore, one person holds all three roles.
A revocable trust acts somewhat like a business entity, by allowing you to place property into a trust and manage it as outlined within the terms of the trust. Not every trust has to have a trust document. Typically, when you create a trust you draft the outline of what the rules of that trust are, resulting in a public trust agreement. If you don’t have a trust agreement drafted, you will follow the default rules in the state of Florida. A great benefit from having a trust is that it gives you a lot of flexibility in what you’re able to do with it.
An example I often use to explain trusts is that they’re like a moving van, where the only things you are taking with you are the things inside the van. Therefore, if you don’t put anything in the van (or trust), you “drive” through life without anything in the back of the van. On the other hand, if you put all your property in the trust (your real property, your home, your bank accounts, and similar assets) you will have your property no matter where you’re going. If you have designated someone to take over when you can no longer drive, they can easily step in the driver’s seat for you and keep driving along. You don’t have to go get another truck and reload it. Trusts, in their most simple form, are an entity that is used so that one person can manage the property of another. For a trust to exist there has to be a purpose for the trust, so there has to be some kind of property within the trust, otherwise, the trust will cease to exist. The biggest benefit that a trust offers is the avoidance of the probate process, which can be very lengthy and expensive, usually costing between 5-20% of the asset value.
Another benefit of having a trust is that if you designate someone as a trustee, they can easily continue taking care of your affairs for you. If you were to become incapacitated and had all of your bank accounts in a trust, the successor trustee would be able to go to the bank, prove your incapacity, and easily take care of managing all of those accounts for you. Theoretically, someone can do something similar under a power of attorney, but sometimes doing so is a lot harder. With a trust, the bank accounts that are noted in the trust will have copies of the trust documents, so the bank will be aware of what the continuity plan really is. This can be especially important for elderly adults and people who may have a risk of becoming incapacitated or need somebody else to manage their financial affairs for a period of time. You can appoint two people as co-trustees so they may manage your affairs for you while you maintain the beneficiary of all of your property, which offers a great deal of flexibility and control over your financial and legal life. Also, unlike most durable powers of attorney which generally give lots of rights, it’s a lot easier to place conditional restrictions on trusts. Another benefit offered by a trust is potential tax savings.
It is more expensive upfront to set up a trust than it is to set up a simple basic will. However, this cost is typically marginal when you look at the grand scheme of the cost over time. But, if you are in a position where you really don’t own any real estate, or you don’t have a need for continuity, then a trust might not be the most effective instrument for you.
If you have a very small estate, sometimes trust administration can be a bit expensive, as there are requirements to file certain tax returns. Revocable trusts however rarely tend to suffer from that problem since they’re fairly affordable, especially when comparing them to the long-term cost associated with probate.
Family businesses are at the highest risk of losing value quickly if an emergency situation occurs and there is a lack of continuity planning. Small and family businesses do not typically have the necessary infrastructure set up in case their primary owner or primary business runner suffers from a sudden health condition or other situation deeming them incapable to work. With a trust in place, a small business can continue to function smoothly.
For more information on Trusts In the State Of Florida, a free consultation is your next best step. Get the information and legal answers you are seeking by calling (954) 546-7755 today.
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