"Building an estate is one thing. Protecting it so that it can meet your needs and then be passed on to your heirs is quite another."
Estate planning is a large part of your financial plan. It is one of the most important steps any person can take to ensure that your wealth, property and final health care wishes are honored, and that loved ones are provided for in their absence.
Through our relationships with several trust companies and trust attorneys*, Capitol Securities Management can provide the trust services support many investors require when it comes to providing for their own needs, or the needs of their loved ones, and passing their estates on to their heirs.
- Questions about trusts
- Estate planning and the life insurance trust
Answers to the Most Frequently Asked Questions About Trusts
Establishing a trust will allow you to determine what happens to your assets and will help protect them from unnecessary estate taxes.
- What is a trust?
- Who needs a trust?
- Will or trust? Which is best?
- Why set up a trust?
- Who sets up a trust?
- What about fees?
- How are trust assets invested?
- Is a trust right for you?
- How does one choose a trustee?
Talking about trusts can be confusing
Not talking about them can be devastating. After working a lifetime to build an estate, it’s natural to want two things: the right to determine what happens to your assets and the right to protect them from unnecessary estate taxes. T hese are the two primary reasons for establishing trusts.
But how do you know if you need a trust? How do trusts work? How are trusts set up? How much does one cost? Who should serve as trustee? These are just a few of the most frequently asked questions about trusts.
There’s no reason to feel uncomfortable about not understanding the terminology or technicalities of trusts. Few people understand them until they discover they need one ... and by then it may be too late. A Capitol Securities Management advisor can help you better understand the reasons for trusts and the process involved in establishing them.
What is a trust?
A trust is a legal agreement between two parties, the person who creates the trust and the person, institution or independent trust company responsible for administering the trust, the trustee. The trustee manages the assets placed in the trust for the benefit of a third party, the beneficiary.
Who needs a trust?
Not everyone needs a trust, but most people should consider one. Trusts aren’t just for the affluent. Setting up a trust is an excellent way to control what happens to your estate, regardless of its size, to possibly reduce estate taxes and protect against the expense and aggravation of probate.
More than two million U.S. taxpayers have established trusts. Those who benefit most are married couples with net estates exceeding $4 million and single people with net estates exceeding $2 million; however, under the current tax law, these amounts will increase over the next several years.
The net value of an estate can be determined by adding the market value of all assets, including real estate, personal property, businesses, bank accounts, investments, IRAs or other retirement benefits, and life insurance, then subtracting liabilities.
Unlike wills, trusts are not subject to probate and therefore allow you to keep your affairs private.
Will or trust? Which is best?
Most people need both. A big advantage of a trust is that it is generally the best strategy to avoid probate and protect financial privacy. Wills must be validated by probate court, a lengthy and expensive process that can take six months to two years and, in some cases, even longer. Probating a will may involve attorney’s fees, executor’s commissions, administrative and other court costs. Unlike wills, trusts are not subject to probate and therefore enable you to keep your affairs private and minimize settlement costs and estate taxes.
Why Set Up a Trust?
There are many reasons to set up trusts. Married couples often realign the ownership of their assets to save substantial federal estate taxes and pass more on to their heirs. Rather than owning assets jointly, they choose to own assets individually so that they can each take full advantage of the increasing unified credit amount. Preserving each spouse’s unified credit can help save on estate taxes.
If the time comes that you are no longer able to handle your own affairs, trusts can ensure that there will be someone who is experienced and objective to “mind the store.” If there is a serious illness or disability, a trust ensures that a plan is in place to take care of your needs and those of your loved ones. When the trust is managed by a full-service trust company, other professional services can be provided, such as bill paying.
In addition, business owners can use trusts to save on estate taxes when passing along businesses to heirs. Trusts are also useful for blended families with spouses or children from previous marriages. The trust can spell out exactly how marriage affects the inheritance of children or grandchildren from a first marriage.
It is important to consider naming an independent trust company as trustee as it removes the emotional element often associated with friends or family members.
Who sets up a trust?
Usually, attorneys draft trusts.
What about fees?
Generally, fees for trust services are spelled out in the trust document. Under normal circumstances, they are calculated annually, based on the level of responsibility assumed by the trustee and the value of the assets in the trust. Fees are charged quarterly or monthly and a portion may be tax-deductible.
How are trust assets invested?
Ultimately, it is the purpose of the trust that determines how the assets are invested, and it is the responsibility of the trustee to see that the purpose is carried out. Often, the person who creates the trust will name a professional investment manager to work with the trustee and make investment recommendations based on the goals of the trust, the needs of the beneficiaries and the time horizon.
Is a trust right for you?
Even people of moderate means may be subject to estate taxes, which could be significantly higher than income taxes. But saving on taxes isn’t the only reason for trusts. Some families want to plan for long-term care or education for their children or grandchildren. Others want to provide for a favorite charity. One thing is certain, if a trust is needed, the time to plan for it is now.
* Capitol Securities Management does not provide any legal or tax advice and the statements above are for informational purposes only. Please consult your tax or legal professional for more information.
