As you embark on your estate planning journey, consider how trusts can help protect your assets and achieve your financial and legacy goals. “Trusts are very convenient in that they allow you to be specific about your intentions for the wealth you’ve accumulated over your lifetime,” says Chuck Dickson, Byline Bank Vice President and Portfolio Manager.
Trusts enable families to access income in the near term and provide for beneficiaries after the benefactor passes away. The spectrum of trusts available means you can tailor them to your unique financial circumstances. For instance, you can implement trusts to provide income to a surviving spouse, fund care for a child with special needs, address tax concerns, support charitable causes and more.
“Trusts are one of the most powerful tools in your estate planning tool kit,” Dickson says. “They should be an integral part of your financial planning process.”
Trusts unveiled: A foundation for financial security
At its core, a trust is a legal agreement that enables a trustee to retain assets for a beneficiary. Trusts differ from wills and account beneficiary designations, which provide instructions for distributing assets but still require beneficiaries to go through the probate process (that is, the legal process for transferring assets) before they receive anything. Instead, trusts stand on their own, with the trustee directing the distributions established by the trust terms.
The world of trusts can quickly become complex, with various types available for all sorts of purposes. However, the spectrum of trusts and the flexibility of trust terms are key to their appeal. “You can be very specific about what you want,” Dickson says. Estate planning attorneys and financial advisors can help you determine which types of trusts align best with your financial goals or family situation.
“The main thing is to start these conversations early,” Dickson says. “Your financial advisor will be able to guide you toward the best trust strategy, but you don’t want to leave it until the last minute or be scrambling if a crisis occurs.”
Guiding wealth distribution: The trustee's role
As previously noted, trusts entrust your assets to a third party for distribution. This “trustee” is tasked with managing the assets for the benefit of the beneficiary. It’s a significant responsibility, with the trustee carrying out the intention of the trust and ensuring that distributions match the intentions of the trust document. Dickson notes that individuals often act as the trustees of trusts they create while they’re alive.
However, he advises that people designate a trustee to manage the trust after they pass away. People often assume that a family member is the best choice, but that may introduce other complications if the family member becomes ill or passes away as well. That’s why Dickson recommends that families establish a corporate trustee or use a combination of a corporate trustee and a relative.
“A corporate trustee like your bank has experience managing trusts and provides some guaranteed continuity,” Dickson says. They’re not going to become emotionally involved or overwhelmed by the work; they bring an objective point of view and expertise regarding how to manage trusts effectively and efficiently.”
Beyond assets: The comprehensive impact and benefits of trusts
Trusts offer a range of advantages that benefit the beneficiaries and the individuals who created it. Consider how the following trust benefits could play a role in your estate plan:
- Asset protection. Trusts can protect assets from creditors in specific circumstances. For example, if you create an irrevocable trust, which means you give up control of your assets once you bequeath them to the trust, then those assets can’t be accessed by creditors, divorced spouses of the beneficiary, senior care facilities, etc. However, if you can still access assets in your trusts (such as via revocable trusts), creditors can also.
- Tax efficiency. The assets you place in a trust can avoid the federal estate tax. With an irrevocable trust, for instance, you transfer money out of your estate and into the trust. These assets and their earnings may then be transferred to the next generation without incurring estate tax. Benefactors are still subject to a gift tax (and can use the annual gift tax exclusion) when they gift money to the trust.
- Distribution control. More than a will, trusts enable the benefactors to establish criteria and parameters regarding the distribution of the trust’s assets. For example, you might connect trust distributions to reaching certain age milestones or designate that the distributions are used for specific purposes, such as buying a home or paying for higher education. The trustee ensures that the distribution and access to the assets reflect your wishes.
- Adaptability to changing circumstances. With revocable trusts, you can amend the trust terms while still retaining control of the assets. Your financial and personal circumstances will likely evolve over the time you have your trust. Fortunately, you can adapt a trust to match your new goals, whether adding a charitable beneficiary, amending the distribution criteria or including new family members as beneficiaries.
- Alternative to probate court. As Dickson noted, assets held in trust are not subject to probate, the legal process for transferring assets. The probate process can take quite a long time, sometimes months to years, depending on the complexity of the estate. It can also be costly, especially if a will or beneficiary designation is contested. Trusts avoid the probate process altogether.
Trusts play a critical role in the estate planning process. “Trusts work well in so many situations, offering multiple benefits and ultimately giving benefactors the peace of mind that their assets will transfer just as they intended,” Dickson says.
Whether you’re planning for your retirement or your family’s future, Byline Bank’s Wealth Management team is ready to provide customized solutions for your financial needs. Get in touch.
