A trust is an estate planning tool where the grantor (person who creates the trust) transfers assets to the trust to be managed by someone they choose as a trustee. Transferring assets to a trust is accomplished in many ways, but largely by re-deeding or titling. For example, John Doe transfers the deed to his house from “John Doe” to the “John Doe Trust.”
Here are 4 things trusts do that you might not know:
- Protect beneficiaries. Children and grand-children are typical beneficiaries in estate planning to protect their futures. Trusts can preserve assets to children by distributing certain amounts at certain ages, such as distributing one-third of the assets at age 25, another chunk at 30, another final chunk at 40 or any age. Staggering distributions to a child ensures they are taken care of to an extent through a certain period in their life. If you have only a will, assets go to beneficiaries once they reach 18.
- Provide for beneficiaries with special needs. People with special needs often need government benefits such as Medicaid and Supplemental Security Income (SSI) for healthcare and necessities. Special needs trusts ensure that a disabled beneficiary can have assets without disqualifying him or her from receiving government benefits.
- Provide for pets. Trusts can ensure the care of your pets by naming people (a caregiver) to care for your pets, and providing funds to ensure that your pets receive care. The Humane Society of the United States estimates that over 100,000 pets are taken to shelters each year after an owner dies, and in areas with large elderly populations, half the pets in shelters end up there due to their owner’s death.
- Encourage certain values. Trusts can provide incentives for pursuing a post-secondary education, encourage community service or productivity, support home ownership, encourage long-term savings and planning. You cannot condition distributions to beneficiaries on anything that violates public policy, but providing matching funds or financial support in certain circumstances can be a way to reward values that are important to you.
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