When it comes to estate planning in Baltimore many people associate the words “trust fund” with the very wealthy. And while this definitely applies to those with significant wealth, the truth is trust funds can make a lot of sense for anyone with a home, business, large investment, or even sum of money they would like to pass on to future generations.
Today we are going to explore why you might consider setting up a trust fund and why the affluent noble families and powerful moguls of the Baltimore area are not the only ones in need of quality estate planning.
What is a Trust Fund?
In simple terms, a trust fund can be defined as a special legal entity that holds assets that you own for the later benefit of another person, group, or organization, such as a charity. Trust funds can be comprised of cash, stocks, bonds, real estate, mutual funds, art, and any other assets that hold financial significance.
Trust Fund Parties
There are three involves parties when it comes to creating a trust fund:
- The Grantor. This is the person who establishes the trust fund and determines the terms upon which it must be managed. As a grantor (also referred to as the donor), you have a lot of flexibility when it comes to setting the terms and conditions for the disbursement of your assets. You control who will receive your assets and when they will be disbursed. You can even designate specific time intervals for asset distribution if it applies.
- The Trustee. The party responsible for overseeing your trust fund and assuring it is handled according to your set terms and conditions is the trustee. This position can be designated to one single individual, an institution such as a bank, or even multiple trusted advisers. Often, the trustee is paid a management fee for maintaining the trust fund for you.
- The Beneficiary. This is the person, group, or organization for whom the trust fund was established. The trust fund is designed to bring value to the beneficiary in some financial way, but only in the way the grantor feels is appropriate.
Types of Trust Funds
There are many different types of available trust funds, many of which your qualified Baltimore estate planning lawyer can explain to you. However, there are two main types of trust funds you should be aware of before starting your estate planning.
1. Living Trusts
The first type of trust fund you may be interested in setting up is called a living trust, or inter vivos trust. Established during your lifetime, this trust fund’s terms and conditions can be changed or dissolved at any time by you, the grantor. This means that this trust fund is revocable. Living trusts can be designed so that disbursement to the beneficiary occurs while you are still alive or only after you have passed.
2. After-Death Trusts
The other type of trust fund is called an after-death, or testamentary trust fund. This trust fund is created while you are alive and is only distributed to the beneficiary upon your passing. After-death trust funds are considered irrevocable, meaning the terms and conditions of the trust cannot be changed after your death.
Advantages of Trust Funds
Again, while many rich and powerful players in the business world set up complex trust funds in order to protect and distribute their wealth in a way they see fit, anyone with something of value can benefit from setting up a trust fund as well.
Most people understand the importance of having a will for after they pass. However, adding a trust fund to your estate planning can boost the control you have over your valuable assets.
With a trust fund, your beneficiaries can only receive your assets under your specifically outlined terms and conditions. With a trustee to help enforce this, rather than an appointed executor with no interest in your assets, you can rest assured your last wishes will be granted. This is especially true when enforcing an irrevocable trust that cannot be modified regardless of who comes forward after your passing with the intent of challenging it.
Most assets associated with your trust fund can avoid the probate process after you pass. This means that there is no legal process required to “prove” your trust fund is a valid legal document as would be the case with a last will and testament.
By setting up a solid trust fund, with the help of your estate planning lawyer, your trustee will be able to directly disperse your assets to the designated beneficiaries. This also means your beneficiaries may receive your assets quicker than through probate, which is known for taking up to a year or more to be fully processed.
One of the biggest advantages for setting up a trust fund to distribute your assets rather than using a last will and testament is the notion of privacy. Living trusts are not made public upon your death and your assets will be disbursed privately to your beneficiaries. This is not the case with wills; all wills are made public record, as are any asset distributions associated with them.
The most common way you can save money by setting up a trust fund is during the disbursement period. As noted above, when you have a trust fund, you can usually bypass the probate process. Not only does this help speed up the process for your beneficiaries, it saves a lot of money in legal fees.
Depending on the type of trust fund you have set up, you may also be able to save money when it comes to taxes. For instance, if you have a life insurance policy, the money from your policy will be added back to your estate upon your passing.
This may turn an estate that was not subject to federal taxes into a valuable one that is now going to be taxed big time by the IRS. However, if you set up an irrevocable life insurance trust instead, your policy benefits are not subject to estate taxes regardless of the amount. Now your beneficiaries will be able to receive the policy amount in full without having to worry about additional taxes.
As you can see, there are many valid reasons why you should consider getting a jump start on your estate planning – in the form of a trust fund – if you have any valuable assets you wish to pass down to your closest family and friends.
If you are in the Baltimore area and are at any stage of your estate planning, you should consider contacting Dilip Paliath, Esq. As an experienced estate planning lawyer, he can help you customize the perfect trust fund for you and your family’s needs.
Whether it be your multi-million dollar business you wish to pass on to your children, a small lump of cash you wish to give to your grandchild for use on college only, or some valuable antiques you know would be better suited to go to your closest friend, it is never too late to start your estate planning.
Getting in contact with a highly qualified estate planning lawyer will assure your assets are protected, money and time is saved, and everything gets distributed as you wish. Let Dilip Paliath, Esq. help you understand your trust fund options and get your estate planning underway.