Is a Trust the Right Choice for Me?

 In Planning, Goodman Financial Insights

One topic that frequently comes up when we discuss financial advisory issues with clients is the issue of trusts. The most commonly asked questions are what is a trust and how do you know if you need one or not.

A trust is simply a way to hold assets so that a “beneficiary” gets the benefit of those assets without having ownership or control over the assets. A “grantor” funds the trust and decides the terms of the trust including naming a “trustee” that manages and distributes the assets to the named beneficiary. Trusts can get complicated. The grantor can serve more than one of these roles including being the trustee, the income beneficiary, or the residual beneficiary, each with separate ramifications.

One of the most common uses of a trust is for parents to establish a trust in their will to provide for a child that is not capable of managing their own financial affairs. The child could be incapacitated or just not yet of an age where the parents feel they are capable of managing or receiving a large inheritance outright.

Another common use of a trust is for purposes of asset protection. Trusts can be useful in creditor situations — creditors typically can’t access the trust assets to satisfy a beneficiary’s debts or liability judgements. Trusts can also be useful in divorces — trust assets aren’t typically part of the marital estate. Parents who worry about the influence their child’s spouse has over their child can also find trusts useful — an inheritance left in trust for their child can’t be accessed by the spouse and the child can’t be unduly influenced to give the assets to the spouse since the trustee would determine what distributions are made.

“Living” trusts are also commonly used trusts. In contrast to the other trusts mentioned, they are established for the grantor’s own benefit during their lifetime and have different tax and estate implications than the previous trusts discussed. We often find that living trusts are set up but not properly funded or managed consistent to their purpose. So before setting up a living trust, or any trust, it is best to consult with a trusted advisor to help you fully understand the implications for creating and operating one. While we don’t practice law, the professionals here at Goodman Financial can refer you to and coordinate with an experienced estate/trust attorney and help advise you when trusts appear to be appropriate for accomplishing your goals and taking care of those you love.

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