There are a few different types of trusts, and knowing about them can help you know which one you need. They usually involve a trustee and a beneficiary, and the trustee is responsible for holding and managing property for another person or persons. Trusts can be set up while someone is living, referred to as an inter vivos trust, or it might only come into force after someone has died, known as a testamentary trust. Testamentary trusts take effect only after the death of the original maker of the trust (will). Depending on the type of trust, trustees have specific responsibilities, ranging from administering assets correctly to filing tax returns properly.
Most people think that trusts are expensive and do not discuss them enough because they don’t know what they are or how to utilize them. In reality, trusts do not have to be expensive, and in fact, you can set up a trust yourself without going through an attorney. Usually, when people think about setting up a trust, they believe it is only for people with lots of assets, which is not the case. Trusts offer enormous benefits for all types of people in every walk of life, and they protect assets from creditors, lawsuits, taxes, and it also helps to reduce estate costs after death.
These trusts usually revolve around money but might also apply to real estate or automobiles. Remembering where each type of trust comes from within the legal system will help you understand what precisely these different kinds of trusts can do for you and how to utilize them best.
These 4 Main Types of Trust Are:
1) Cook Islands Trusts
These types of trusts originated in the Cook Islands, and they are designed to provide privacy, confidentiality, and asset protection. This is achieved through a trust structure that most countries’ tax rules do not recognize. As long as your money is based outside of Panama, then you don’t have to worry about paying taxes on foreign earnings until they’re repatriated back into the country where you live. Also, a Cook Islands trust is considered safe as it can be established with only one trustee. So there is no chance of anyone running off with your assets, and it means that if anything happens to the trustee, someone else can easily take over.
2) Inter Vivos Trust
A trust is created while the person who makes it is alive but not yet in effect after death. This type of trust is commonly used by parents who create a ‘living’ or ‘family’ trust to take care of their children’s needs such as education, healthcare, and so forth even after they’re gone. An inter vivos living trust involves complex financial planning and usually requires legal assistance to write, revise, and finalize it. Without written documentation, the estate will revert into probate (going through court proceedings). These estates can end up costing more than expected, and that’s where an inter vivos trust comes into play. Some benefits include avoiding lengthy court proceedings and potentially expensive legal representation for tax purposes or property management.
3) Discretionary Trusts
Discretionary trusts allow trustees to decide when and how much money they’d like to give to beneficiaries. This type of trust is beneficial when you don’t know who will need your assets the most, or when you can’t agree on how to distribute them fairly. They can also be used in complicated family structures with multiple beneficiaries with different needs. For example, when two people are married, and one passes away, the surviving spouse may wish for their children from a previous relationship to inherit their share, but they might have other ideas. Discretionary trusts are so named because the trustee has complete discretion over how much money they choose to give out in any given year.
4) Perpetual Trusts
This type of trust encompasses all that an inter vivos trust does, in that it allows you to enjoy the benefits of a trust while you’re still alive. It’s often called a living trust because a person can use a perpetual trust to distribute their assets as they see fit throughout their lifetime and beyond. For example, an individual may place the bulk of their estate into this type of trust to take care of children or grandchildren after they pass away. This is one way to ensure that your loved ones are provided for without the need for probate proceedings. Furthermore, if one were to set up a perpetual trust, no public administration would be required until after death. However, in exceptional cases, like where all beneficiaries agree on distributions from the trust during life, or more than one is involved in making decisions about who gets what.
Benefits Of A Trust:
Trusts can be used to avoid certain taxes and other expenses such as probate fees, money owed in inheritance tax, and additional costs associated with property management. You can use trusts to protect your assets from creditors or people who might be trying to sue you for whatever reason, which means that if someone wants to put a claim against you but not touch your assets, then they need to go through the courts first. Another good thing about trusts is that it avoids lengthy court proceedings because most are included within the original trust document itself.
Take control over how your estate will be distributed after death by setting up a trust, and you can also make sure that your money works hard for you rather than against you. There are many benefits of using trusts, such as privacy protection, asset protection (creditors), and tax savings.
Trust is like having your financial manager execute your wishes while taking care of your assets, reducing costs, and more. You won’t have to worry about anything because it will all be taken care of in the trust document, so let a trustee handle it instead. Set up a family trust for inheritance purposes or something else, but whatever it is, remember to keep things simple by putting the most critical information first.
There are many different types of trusts that offer benefits and protections for people who choose to use this legal arrangement. Whether you’re looking after your children, planning for your death, or ensuring that a cause you believe in continues forward, setting up a trust is an option for anyone who needs protection from creditors or lawsuits, as well as reducing estate costs after death. For more tips on using trusts to your benefit, contact your attorney.