Blog & News
A Few Uncommon Uses of a Trust Fund
Rob Lemmons CFP®, CPA, AIF®, CEPA
Tuesday, March 27, 2018
Trust funds are regarded to as one of the most effective methods of asset planning. Trust funds are generally deposited in an account called the trust which is operated and protected by the concerned institution. Although the basic function of a trust fund is to streamline inheritance distribution, there are a few other important reasons why one must consider obtaining the services of a trust.
1. Reducing Taxes
Some trust funds are created with the purpose of influencing taxes. Trusts are known to reduce and even potentially eliminate taxes in the most advanced situations while most of them can at least delay the taxation process. This feature of a trust fund is very helpful in saving the tax expense after the death of the benefactor.
For example, after the trustor passes away, the tax regulatory authority will determine the size of the entire estate for taxation assessment. But the authority offers a payout for any life insurance policy held by the deceased.
Therefore, in order to reduce the overall range of the estate, many people prefer creating irreversible life insurance trust funds. The trust becomes the possessor of the life insurance policy and its payments, hence the worth of the concerned policy doesn’t get included in the tax calculation post the trustor’s death.
2. Protecting Assets
Trust funds are also used as a method of asset protection. This is the most useful technique for people to safeguard their assets from being seized by creditors. People living in states where such trusts are permitted can create the domestic asset protection trust (DAPT). A DAPT allows the trustor to transfer their individual properties into an irrevocable trust.
This permanent trust is operated by an independent trustee who will be responsible for distributing the trust funds to those nominated as heirs as per the trustor’s directions. The properties which are held in an asset protection trust are also defended against the trustor or beneficiary’s creditors. This means that the creditors will not be allowed to take any property already billed under the trust fund to reclaim any debts owed to them by the benefactor and their family.
A unique feature of a trust is that it can name itself as the trustee and directly look after the trust funds. Trusts are also known as valuable tools to protect a benefactor’s assets in case the latter loses their competence. Incapacitation means that the original trustee might have lost their senses or ability to think and make decisions due to old age or any accident.
This feature also comes into action if the benefactor is in a vegetative state thus preventing them from running the trust funds. This benefit the trustor’s family by removing the need for a court appointed caretaker.
To know more about trusts funds and how trusts are able to benefit a person in numerous ways, contact your nearest team of wealth advisors and estate planning agencies which will help you organize the best trust fund plan.