West Palm Beach, FL / When most people think of setting up a trust, they probably envision a pile of complicated forms and expensive lawyers’ visits. For decades now, trust funds have been synonymous with wealthy estate management and preserving millions of dollars for the rich and famous. For this reason, trusts may possibly be one of the most misunderstood financial tools. Here, Marc Linsky talks about the two main types of trusts and what each is used for.
A trust is part of a well-defined estate plan, Marc begins. It’s a crucial tool for managing your estate both before and after your death. A trust fund, therefore, refers to the account itself, which holds various types of assets, such as stocks, bonds, or real estate. But does everyone need a trust? Marc Linsky says to answer this question, we need to look at the purpose behind a trust and the structure of the trust.
First, Marc says, there are two primary types of trusts, he says. They both are similar, but they are used for different purposes. The first one is revocable and is called a “living trust.” It is used primarily for asset protection, Marc Linsky says. The owner is responsible for the tax payments and the reporting of the activities of the trust. There is some protection against attachment of assets in the case of garnishments or a court order against the owner, but not as much protection as an irrevocable trust, he adds. It also allows for distribution of the assets upon the death of the owner. Also, if the trust is set up properly, it can bypass probate and remain confidential upon the owner’s death.
An irrevocable trust, on the other hand, is one that is set up once and cannot be revoked, modified, or amended, Marc Linsky says. The trustee is responsible for tax payments and reporting on the trust activities. This type of trust would offer even greater protection against the owner’s creditors if the trust was created before any claims against the owner or the estate were made. Marc says since the trust is its own separate entity, the contents of the trust don’t go through probate, thus ensuring privacy for the owner.
There are some alternates to trusts, Marc Linsky adds. For example, a will is not as complex and doesn’t require the annual reporting and expense that a trust does. “If you’re just interested in passing assets to your heirs and don’t have a large estate, you can do this easily with a will,” he says. You won’t even have estate taxes since current tax credits mean only the very large estates have to pay estate taxes now.
These are obviously just the basics, Marc says, and there’s a lot more that goes into estate planning. If you decide to use a trust, be sure you use a qualified lawyer. “I’m also happy to help with additional estate planning,” he says.