If you are getting started with estate planning, you may have heard about the benefits of creating a trust. However, you may still be unclear about what exactly a trust is or what it does.
According to The Street, a trust is a separate legal entity that you create to hold certain assets and distribute them to beneficiaries of your choosing according to conditions that you set.
What are the benefits of a trust?
If you would like to leave money or property to minors, a trust is one of the most useful estate planning tools available to you. Children under the age of 18 cannot legally inherit property, so a trust can hold it for them until they come of age.
However, a trust can still be useful if your beneficiaries are over 18. A trust allows you more control over when and how your beneficiaries receive their inheritance, rather than handing it over as one large lump sum. If you have worries about beneficiaries squandering their inheritance or losing eligibility for government assistance, this is a good way to prevent that. Assets in a trust are not part of your probate estate, so your beneficiaries may receive their inheritance more quickly.
What is a trustee?
There are unique terms for the different parties to a trust. Beneficiaries are those who benefit from the arrangement. As the person who created the trust, you are the trustor. Another party to the trust is a trustee. This is an individual who has the responsibility for managing the trust’s assets on behalf of the beneficiaries.
While there are some legal limitations on who can and cannot become a trustee, you have a lot of freedom to choose. A trustee is a position of authority, so you should choose someone honest and dependable.