Trust Accounts And Their Benefits

Although you may have heard of the establishment of a trust, you may know little about this financial arrangement and its benefits. Here is a bit of information to help you understand trust accounts better:

What exactly is a trust account?

A trust is a type of financial agreement that involves a trustee, or third party, who maintains the assets of a trust and oversees their distribution to the established beneficiaries. The person who establishes the trust can designate when and how the trust assets should be accessed by its beneficiaries.

What are the advantages of establishing a trust account?

There are multiple advantages of a trust account. Here are a few of them:

  1. A trust may not be taxable. If a trust is considered irrevocable, it may not be included as a taxable component of the estate. 
  2. By establishing a trust, you can control the distribution of your assets. Not only do you determine who receives your wealth, but you also decide when they receive it. This can be especially beneficial if you have underage children and would like to delay their access to their inheritance. 
  3. A trust may be accessible to you while you are still alive. If a revocable trust is established, you have access to its contents even though any assets that are still in the account after your passing will still be distributed to your beneficiaries.
  4. Your trust can protect your assets from creditors. If a trust is arranged wisely, it will help ensure that your assets do not go to the creditors of your heirs. When an entire inheritance is received at once, creditors may be able to take the entire sum to satisfy a debt. However, if the trust is distributed in small increments, it can help ensure that it provides lasting support to your beneficiaries, even if they are not good at managing money. 
  5. A trust offers a private way of distributing wealth. Financial assets that are distributed through probate are publicly communicated. However, a trust that is not included in probate can be kept private. 
  6. A trust may be distributed without court fees. If a trust is outside of probate, there may be no court fees associated with its distribution.

Are there multiple types of trusts?

There are several different types of trusts. Here are some of them:

  • Charitable Lead Trust: A portion goes to charity before being the remainder is given to your beneficiaries.
  • Marital Trust: Spousal benefits from the trust are included in the inheriting spouse's taxable estate.
  • Testamentary Trust: The trust is formed through a will, and its assets are taxable and  governed by probate.

To learn more about trust accounts and trust management, consult a financial specialist in your area.