Trusts are an important tool in estate planning, because they can be set up to specifically address a variety of familial goals, and even to earmark funds for our own needs later in life. However, when a trust is established, diligent follow-through is required to ensure the designated assets are actually transferred into it.
Assigning Assets To A Trust
Creating a last will and testament is a time honored way to designate assets for beneficiaries. However, wills have some limitations: they do not become effective until the death of the testator (person creating the will), so they are not a useful way to plan for our own potential declines. Additionally, wills do not allow for the distribution of assets to beneficiaries over time or based on milestones, like age or educational attainment. When it comes to attending to these types of goals, trusts are a vital tool in estate planning.
When establishing a trust, the grantor (person setting up the trust), can plan for their own needs as they age, and designate assets for distribution to loved ones, charitable organizations and even pets:
A trust allows one person, known as the trustee, to manage funds and assets for one or multiple beneficiaries. Trusts can be revocable or irrevocable.Revocable trusts allow the grantor – the person creating and funding the trust – to change it during their lifetime….With an irrevocable trust, the grantor cannot make modifications. Assets placed in this type of trust no longer belong to the grantor. Such trusts can therefore help someone qualify for government benefits, reduce their taxable estate, and transfer wealth. The value and utility of a trust will depend on your unique circumstances as well as the type of trust you use.
An overarching advantage of trusts is “having more control over assets than if you gave them to the recipient directly.” Trust agreements, for instance, can specify the age or educational attainment level required before funds are distributed. The flexibility of trusts means they can be tailored to address a variety of values, goals and circumstances:
“There are numerous benefits of using trusts in your estate plan. For example, trusts can maximize the tax code provisions shielding assets from gift and estate taxes, protect assets from the clutches of creditors or ex-spouses, and maintain control over potential spendthrift heirs, just to mention a few common benefits.”
Along with the many advantages of trusts, however, comes responsibilities for the trustor. In addition to working with an attorney to establish the trust, the trustor must follow through diligently on actually funding the trust, which typically involves ensuring that the designated assets are retitled–one by one–to the trust:
Trusts aren’t a “draft-it-and-forget-it” proposition. Notably, a trust won’t do you any good if it isn’t properly funded, including additions that are warranted. For example, you may neglect to move certain assets — including cash, securities, real estate, artwork and other types of property — into the trust … .This may defeat your estate planning intentions … .Make sure to retitle assets in the name of the trust. This is often easier said than done and will require you to meet specific requirements depending on the asset type … .If you fail to retitle assets, they’ll fall outside the scope of the trust. This means they’ll have to go through probate like other assets in your name. The probate process can be costly and time consuming, depending on which state you live in … .Even worse, you don’t derive the benefits of using a trust for those assets unless those assets are eventually transferred into the trust….
Understanding The Trustee Role and Trustee Bonds
When trusts are established, trustees are named to administer the assets in them, based on the arrangements specified in the trust agreement. Trustees have fiduciary obligations and are held to exceptionally high legal standards,“the most important of which are the duties of loyalty and care, and the duty to act in accordance with the terms of the trust agreement.” Given the seriousness of the role, trustee bonds are often required. Essentially, a trustee bond is a specific type of fiduciary bond that protects the interests of the trust and its beneficiaries in accordance with applicable state law. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain trustee bonds: Just get a quote online, fill out the information, and enter a payment method. Then, simply print or e-file the bond from anywhere.
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