Posted on: 03-12-2014 in Retirement Planning
What is a trust?
A trust is a legal agreement, which makes a third party, known as the “trustee”, responsible for holding and managing assets for the benefit of one or more “beneficiaries” (for example your spouse or children). The person who initiates the trust and transfers all or part of his belongings into it is known as the “grantor” (or settlor or trustor). The trustee is obliged to manage the trust according to the grantor’s wishes, typically written in a “trust deed” or formulated in the grantor’s will.
Trusts can include various kinds of valuable assets, such as property, financial instruments (like shares, bonds or options) and even life insurance, art, jewellery or antiques. These are formally called “trust property”.
Benefits of setting up a trust
There are three very important features of a trust.
Firstly, the assets are no longer legally owned by the grantor. As a result, they are protected from claims against the grantor, for example in lawsuits.
Secondly, the assets are no longer part of the grantor’s estate, which can eliminate or reduce estate taxes, as well as simplify and speed up the transfer of inheritance upon the grantor’s death.
Thirdly, the beneficiaries have no decision making power over the way how the assets are managed. This is very important when the beneficiaries are too young or otherwise unfit for that task and there is a risk that their actions could lead to losses.
How to set up a trust?
Keep in mind that there are many different types of trusts and the above-listed benefits may not fully apply to all types. Moreover, the exact rules and little details vary across jurisdictions. There is no one size fits all when it comes to trusts, asset protection and estate planning. At the same time, even a small mistake or omission can turn out to be very costly in the future.
When setting up a trust, make sure you work with a specialist who has experience with both the jurisdiction and the kind of situation you are in. Make sure you have a full understanding of all the implications and don’t be afraid to ask questions – even those you may find silly. A good provider will have patience and even appreciate you asking them.