• 10
  • June
    2011

A trust is a legal agreement that can help to protect the wealth that you have created and provide for the financial future of your loved ones. Generally speaking, when a person dies, the wishes contained in their will are subject to the probate process and thus become public. One way to maintain privacy and avoid the probate process is to employ the use of a trust, which requires the assets to be distributed in accordance with the trust agreement.

However, trusts are not solely created to be used upon one's death. Trusts can protect the assets from taxes, creditors or others who may wish to gain access to the assets.

There are many reasons that people of all ages should consider using a trust, including:

  • To create a protected emergency fund
  • To benefit a disabled child
  • To prevent children from squandering an inheritance
  • To ensure that children from a previous marriage are protected upon the death of a current spouse

There are two primary types of trusts, each of which has its own tax ramifications:

1. Revocable Trusts. These are mainly used to avoid probate, as the assets will be distributed in accordance with the trust agreement. They are more flexible and can be revoked. The income earned from a revocable trust is included in the grantor's income. The trust does not pay a separate income tax or file its own tax return. The assets are included in the grantor's taxable estate.

2. Irrevocable Trusts. These are mostly used for estate planning and asset protection. The grantor gives up ownership and control over the assets and the transfer cannot be revoked. The assets are removed from the grantor's estate. The trust files its own income tax return and pays its own income tax.

Trusts are complex. The drafting of a trust is specific to a person's particular circumstances. Florida residents who are considering the use of a trust can do so with the help of an experienced attorney who can offer professional advice as to the most appropriate legal instrument and draft the trust accordingly.

Source: delmarvanow.com, "Creating a trust can be a way to protect wealth," 5 June 2011