Most of us are familiar with wills, and may even have one in place. But when people think of trusts, they often picture something suited only for the very affluent. However, that’s simply not the case; a trust can be helpful for people in a variety of situations, regardless of their level of wealth.
So, what is a trust?
It’s a legal relationship in which the trustee—who can be you or someone you name—holds title to assets and manages them on behalf of the beneficiaries of the trust. Depending on the type of trust you create, those beneficiaries could include you, your family, or your favorite charities, and the assets held inside the trust could include investment accounts, real estate, and more.
Trusts come in two main varieties: revocable and irrevocable. A revocable trust allows you to access the assets—as well as alter or cancel the terms of the trust—at any time, and is often used to avoid the lengthy and often expensive probate process, which can slow down the transfer of assets to heirs after death. Irrevocable trusts, on the other hand, cannot be changed or canceled once established, thereby removing the assets from your control and your estate, and are often used for more sophisticated estate-planning needs, such as minimizing taxes or planning for the ongoing care of a special needs heir.
Other common uses for trusts include:
- Creating specific rules for how your assets will be distributed upon death
- Providing for heirs with competing interests, such as a current spouse and adult children from a prior marriage
- Establishing a charitable giving legacy
- Delegating authority over financial decision-making in the event you become incapacitated
Selecting the right trustee (or successor trustee, if you’re the primary trustee) is critical to a trust’s success. The person should be able to impartially manage your financial assets and be willing to assume all the accompanying legal complexities and administrative duties. They should also be able to fulfill this responsibility for the full term of the trust, which could be decades into the future, especially for complex trusts.
Because of the duties, time commitment, and knowledge that are required of a trustee, many people choose a professional for the role—particularly if they’re establishing an irrevocable trust. A corporate trustee offers the benefits of financial expertise, unbiased decision making, fiscal responsibility, and sworn fiduciary duty to always act in the best interest of the trust and its beneficiaries. Taken together, these can help ensure that your wishes are carried out and your estate remains carefully managed. Plus, a corporate trustee can serve as sole trustee or as co-trustee, working alongside a family member or trusted individual of your choosing.
Ultimately, a trust offers tremendous flexibility in establishing stability and security for your family now and into the future, and can serve as an integral part of your overall financial plan.
Donald Daigle is an Independent Branch Leader and Financial Consultant at Charles Schwab. He is a graduate of Harvard University with 32 years of investing experience locally in South Jersey. Some content provided here has been compiled from previously published articles authored by various parties at Schwab.
Employees of Schwab are not estate planning attorneys and cannot offer tax or legal advice, or create and prepare legal documents associated with such plans. Where such advice is necessary or appropriate, please consult a qualified legal or tax advisor
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