Understanding Trust
Why establish a trust?
Trusts can provide many valuable benefits to wealthy younger families including:
Providing for family members if something should happen to you dictating the distribution of your assets to specific beneficiaries helping transfer highly-appreciated assets tax efficiently, ensuring continued care of a loved one with special needs
Insulating family wealth from lawsuits, creditors and divorce Leaving a charitable legacy
How do trusts work?
A trust is a fiduciary 1 relationship in which one party (the Grantor) gives a second party 2 (the Trustee) the right to hold title to property or assets for the benefit of a third party (the Beneficiary).
1. A fiduciary is a person or organization that acts on behalf of another person or persons to manage assets. Being a fiduciary means that one is bound ethically to act in the other's best interests.
2. In some cases, the grantor can also serve as the trustee.
Trustee Duties
In addition to following all directions in the trust document, the trustee is responsible for:
Assuming legal responsibility for administration of the trust.
Taking control of and protecting trust assets.
Handling accounting responsibilities of the trust.
Strategically managing and investing trust assets.
Reporting to the beneficiaries.
Filling trust tax returns.
Making income and principal distributions to beneficiaries as permitted by the trust.
Managing the tax standing and tax issues of the trust.
Principal — the assets it holds like cash, stocks, bonds and real estate.
What's in a trust?
Income — it's earnings over time, including interest, dividends, rent and royalties.