Trust funds are an essential part of your estate. Trusts help you protect and manage your assets and properties and make sure they’re distributed according to your wishes after your death.
Let’s take a look at the top five reasons that you should consider setting up a trust.
By creating an irrevocable trust, you can shield your assets from lawsuits and creditors.
Let us explain. The primary purpose of a lawsuit is to gain control of your assets as a form of compensation for perceived or real loss.
An irrevocable trust requires three provisions:
- It can’t be canceled or amended by you.
- The trust must have a separate trustee and can’t be controlled by you.
- The trust must have its own income tax return.
By building an irrevocable trust, you’re forming a separate legal entity that can control and manage your assets. Creditors and courts can still go after assets that you own but not those in the trust.
On the other hand, a revocable trust is a trust you can control. In most cases, revocable trusts don’t provide protection from creditors and lawsuits since you have “control” over it. So the law generally considers it part of your personal assets.
Often cited as a primary reason for setting up a trust, avoiding probate could mean substantial savings in time, paperwork, and legal fees. Probate is the process by which a judge determines your will’s validity. The process is a long one, which can take up to a year or two to finalise. But with a trust, your beneficiaries can bypass this process. In addition, they can avoid probate fees, which can be as much as 5 percent of the value of your estate.
Trusts offer flexibility in how your assets are distributed. You can set out in detail how your estate is to be distributed to your beneficiaries.
If you don’t trust your beneficiaries to own the assets you want them to have (maybe because they’re minors or are unable to effectively manage money), you can gradually disburse your assets to them over time through a trust. You can also specify how the funds can be spent, for example, on food, rent, healthcare, and other necessary or emergency expenses.
If you’re unsure of how you should manage your asset distribution, you can always contact your local trust management service provider to help you.
Providing funds for education use
You can set aside money for your children, grandchildren, or other beneficiaries that they can use for educational purposes, such as college tuition.
Planning for incapacity
Another benefit of setting up a trust fund while you’re alive is that your successor trustee can manage the trust on your behalf if you become incapacitated. For example, you’ve become severely ill and unable to maintain your trust yourself, who’ll manage your assets? The successor trustee can do that. If this isn’t the case, a court might have to decide on who should trust over your assets.
These are just five reasons why you should set up a trust fund. If you want to ensure financial protection on your family, you should strongly consider setting up a trust.