Trust Basics, Wills, Trusts, Estate Planning, inheritance tax, Probate Process, Probate Property, Estate   Trust Basics, Wills, Trusts, Estate Planning, inheritance tax, Probate Process, Probate Property, Estate 
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Trust Basics

Home > Trusts > Trust Basics

Trust Basics, Wills, Trusts, Estate Planning, inheritance tax, Probate Process, Probate Property, Estate
There are a number of very good legal and financial reasons for setting up a trust as part of estate planning. One of the most important reasons is to protect your family’s assets and shield your wealth. Also, trust funds can minimize taxes, protect your family’s privacy during the probate process, and ensure that the wishes of your relatives or other loved ones are carried out even if they become incapacitated.

A trust also benefits you. Money held in it is given to you under the watchful eye of professional advisors over a period. Hence, you not only have the resources, but also the time, to learn to manage this wealth wisely.

Moreover, a trust gives you many rights and protections. So, it is important to understand its workings.

The Basics
Funds held in a trust are usually invested in stocks, bonds, real estate and other financial instruments. Legally speaking, these assets belong to the trust—not to you! However, these assets produce income. Depending on the terms of the trust the income may be paid to you as distributions.

It is important to understand the difference between trust principal and trust income. All the assets held in a trust constitute the trust principal. The dividends, interest and partnership distributions generated by these assets make up the trust income. Trust income is distributed to beneficiaries based on written provisions.

The trust clearly states out how principal and interest are to be paid. The release of both principal and income can be either discretionary or mandatory. If the terms of the trust require trust income to be distributed, it is mandatory and not within the trustee’s discretion to withhold it.

Discretionary distributions on the other hand leave it up to the person administering the trust (trustee), to determine whether the circumstances meet a particular standard or a group of rules set forth in the trust instrument. The trust could allow principal distributions for specific purposes such as the purchase of a house, educational expenses, or medical expenses. Depending on your situation, the trustee—most likely a family advisor or financial institution—may or may not agree. For instance, you may feel a trust that provides for your “medical expenses” should cover the cost of a spa membership or hot tub. Your trustee may not agree.

Rights and Protections
As a beneficiary of a trust, be assured that you are not left to the whims of the trustee. The legal documents which set up the trust spell out in detail, your rights as the beneficiary.

You have a right to information about the trust, including the legal documents that established it, financial records, tax returns, etc. You are within your right to meet with the trustee and to expect the trustee to respond to your requests - although there is no guarantee you will always like the response. Of course, not all trusts are the same, but in general, you are entitled to hire a lawyer to help determine and enforce your rights.

The trustee’s responsibilities
Trusts are governed by many state and federal laws. In general, they require your trustee to follow the terms of the trust and manage its assets prudently and responsibly. One of the most important duties of the trustee is to protect the principal, especially if it is earmarked for future generations. A trustee failing to do so could face scrutiny, or in extreme cases, penalties.

Responsibilities of the beneficiary
Never let these protections lull you into complacency. As a beneficiary, you have a responsibility to take an active role in making sure that the trust is administered properly. Sit down with the trustee and learn how the trust’s assets are being cared for at least twice a year – more often, if possible.

Do not hesitate to ask tough questions and to hold the trustee responsible. You can ask a court for a replacement if you believe your trustee is not performing his or her duties properly. Some trusts may even grant you the power to remove the trustee. But do not take these decisions lightly.

Get some help if you feel you do not know enough to ask the right questions about the trust structure or the investments. There are many people you could call on to be advisors: family friends, lawyers, accountants, and financial planners.

You will gain a better understanding of how this works by taking an active role in the management of your trust. But remember, your advisors are anxious to help you, no matter how young you are. Since a trust can help preserve a family fortune, learning more about yours will not only help you but also benefit future generations.


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