A trust is a legal instrument that allows an individual (the trustor or settlor) to transfer assets to another individual or entity (the trustee) who will hold and manage those assets for the benefit of a third party (the beneficiary). There are many reasons why a person might need a trust, according to a trust lawyer from Kaplan Law Practice, LLC:
- Estate planning: A trust is an effective tool for estate planning. It can help avoid probate, reduce estate taxes, and provide for the distribution of assets in a controlled and efficient manner. By setting up a trust, an individual can ensure that their assets are distributed according to their wishes and that their loved ones are taken care of after they pass away. As part of an estate plan, trusts can both protect your assets for family members but also provide for your children.
- Asset protection: A trust can protect assets from creditors and lawsuits. This is particularly important for individuals who work in high-risk professions or who have a high net worth. By placing assets in a trust, they are shielded from potential creditors and litigants; in this case, it is not uncommon for family members to fight over assets.
- Privacy: Probate proceedings are public record, which means that anyone can access information about a person’s estate. By using a trust, an individual can keep their estate plan private and confidential. This is particularly important for individuals who value their privacy or who have sensitive information they want to keep out of the public eye. It can also protect your information moving forward.
- Special needs planning: A trust can be used to provide for the needs of a disabled individual without jeopardizing their eligibility for government benefits. By setting up a special needs trust, an individual can ensure that their loved one is taken care of while still qualifying for government assistance. This is the best approach to take if you have a special needs child.
- Business succession planning: A trust can be used to transfer ownership of a business to the next generation. This can be particularly important for family-owned businesses, where the owner wants to ensure that the business stays in the family and is passed down to the next generation. Or, it is also a good idea if you have partners.
- Tax planning: A trust can be used to reduce tax liability. For example, a charitable trust can be set up to provide for a charity while also reducing the settlor’s tax burden. You should contact your CPA to see if this is a good idea based on your finances.
- Minors: A trust can be used to hold assets for the benefit of a minor. This can be particularly important if the minor inherits assets or receives a settlement from a lawsuit. By setting up a trust, the assets can be managed for the minor’s benefit until they reach adulthood. It can also help families plan better and set aside money for their children.
In conclusion, there are many reasons why a person might need a trust. It can be hard to know which type of trust is right for your situation. By working with an experienced estate planning attorney, an individual can determine the type of trust that is right for them and ensure that their wishes are carried out according to their wishes.