Easier Than You Think: Trusts Are Not Just for the Wealthy

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Easier Than You Think: Trusts Are Not Just for the Wealthy

By Admin |05-04-2016 08:54

It is a common misconception that trusts are complicated, lengthy, and expensive. They are not, however, as scary or difficult to compose as many believe. Being rich is not a requirement, nor should wealth alone be the determining factor.

A professional should be able to adequately educate the client on the benefits and risks associated with different plans of action or estate planning. The client then, with the proposed knowledge, can make an educated decision based on three criteria: 1) the cost of formation in relation to client’s level of wealth, 2) the type of assets the client possesses, and 3) the amount of control the client desires. If drafted properly, a simple trust can be just as effective as a complex trust, while still staying within an acceptable range of financial value in light of the client’s means and needs.

The most common type of trust used in estate planning today is the revocable living trust, also known as the inter vivos trust. In its most basic form, the client names him/herself trustee, for which he/she act as trustee and beneficiary during his/her lifetime. Upon death, a successor assumes trust management. Mandatory information in the trust will tell who (as beneficiaries) can receive principal and/or income from the trust.

The opposite of an inter vivos trust is the testamentary trust. A testamentary trust is a trust created by a will and becomes effective upon death. These trusts may be an effective tool for smaller gifts, however to properly manage a larger asset, more comprehensive trust language is necessary.

One of the strongest criticisms of trusts when dealing with a client is that the client is being oversold. With difficult language and unethical prices, certain providers have claimed some clients victim. But that need not be the case.

Trusts can contain very complex language, but they also can be as simple as an outline for the distribution of a single asset. With just a few modifications, the same forms can contain all the language necessary to help a range of clientele, while not posing such a strain on the wallet.

In any regard, a trust can result in significant savings for the client, reduce the administrative costs after death, increase privacy, and ultimately give clients far greater control over the who, what, when, and why in the distribution of assets.