What is Estate Planning?
Estate planning is a process that involves professional consultants, such as an Estate Lawyer, who you familiarize with your goals, assets, properties, and your family structure. Estate planning may include the services of a variety of professionals, including your lawyer, accountant, financial planner, life insurance consultant, banker, and broker.
The plan outlines the transfer of property in the event of death, life events, and scenarios. For example, in the event you become incapacitated, or unable to make decisions regarding your estate, the estate plan may outline who will take over. The main document most often associated with this process is your will, although trusts are also commonly associated with the area of estate planning.
A trust is a relationship that involves three parties, the trustor, trustee and beneficiary. In this type of trust, the trustor gives the trustee permission to hold title to assets for the beneficiary. They are created to make sure assets are distributed properly, and to protect assets from being taken away. Additionally, trusts can reduce paperwork and save time and can reduce estate or inheritance taxes in certain instances.
- Trustor – an entity that creates and opens up a trust, also referred to as a grantor
- Trustee – an individual person or member of a board given control or powers of administration of property in trust with a legal obligation to administer it solely for the purposes specified.
- Beneficiary – a person who derives advantage from something, especially a trust, will, or life insurance policy.
- Living – A living trust appoints a trustee to manage the assets for the beneficiary, while the grantor is still alive.
- Testamentary – A testamentary trust is not established until after the person passes away in which the executor settles the estate as outlined in the will.
- Funded – A trust fund is a legal way to hold and manage assets for someone else, with the help of a third party. There is a grantor, a beneficiary, and a trustee.
- Unfunded – An unfunded trust consists of only the trust agreement with no funding. After the trustor dies, the trust becomes funded.
- Revocable – A revocable trust is a trust that can be altered or canceled, depending on the person who created it.
- Irrevocable – A trust cannot be changed without the permission of the beneficiary or beneficiaries of the trust.
Trusts are used to manage and distribute financial assets. The individual can use them during their lifetime or after they have passed away. Trusts can be beneficial by avoiding hefty estate and inheritance taxes and can specify inheritance arrangements for beneficiaries. In some cases trusts protect people’s assets from being seized by creditors.
Although trusts are commonly associated with the wealthy, trusts are a versatile tool that can be used for various purposes to achieve specific goals pertaining to your estate.