What is a trust?
A trust is an arrangement whereby you, as the grantor or settlor, transfer assets to a trustee who then manages those assets for the benefit of beneficiaries named in the trust document. The beneficiaries may include yourself and other individuals or organizations that you specify.
Why create a trust?
Depending on your situation and your assets, there may be several advantages to establishing a trust. A trust can:
- Provide professional management for your assets during your life and after your death
- Avoid the need for court-ordered guardianship if you become incapacitated
- Avoid probate for trust assets at your death
- Provide for confidential distribution of assets at your death
- Allow for distribution of assets over an extended period
- In a second marriage situation, provide income for your spouse, if you die, and still protect the principal for your children from a prior marriage
- Prevent minors from inheriting assets directly and provide professional management of assets for those minors
- Prevent spendthrift heirs from dissipating assets
- Protect assets from creditors of beneficiaries
- Provide for the needs of a handicapped or otherwise incapacitated beneficiary
- Provide flexibility to deal with unexpected circumstances in the future
How is a trust created?
A living trust is created during your lifetime by a written agreement, as prepared by your attorney, between you and the trustee. A testamentary trust is described and created within your will and does not take effect until your death.
Who may serve as trustee?
Your trustee can be a competent individual who is 18 years of age or older, or a corporate fiduciary having trust powers, such as a bank or trust company. You can name more than one trustee, called co-trustees.
Who should you name as trustee?
You may want to serve as trustee for your own living trust for a time. You should also name a successor trustee in case you become incapacitated later. Many people have named JCBank as trustee or successor trustee because of our experience and the requirement that we be impartial, considering equally the needs of all beneficiaries.
Do you give up control by creating a trust?
You can retain control over trust assets. However the type of control you retain may affect the tax consequences of the trust. You can retain the right to withdraw income or principal from the trust at any time. You can also retain the right to amend or revoke the trust at any time.
How will a trust affect my tax situation?
Generally, if you retain any benefits from the trust, such as the right to withdraw income or principal, or if you retain control over trust assets, or the right to change the trust terms, the trust income will be taxable to you. In this case trust assets also are likely to be subject to state inheritance taxes and federal estate taxes when you die.
What should be included in your trust document?
In addition to specific terms you desire, you should always:
- Name the trustee and provide for a successor trustee
- Say who is to receive the trust income, and any conditions under which this might change
- Say when and for what purposes the trustee can or should distribute the principal of the trust
- Specify when the trust will terminate
- Say who will receive trust assets upon termination
- State the powers and responsibilities of the trustee
- State whether the trust is revocable (for a living trust)
Since a trust is a legal document, its language can be complicated. Tax laws that will affect the trust also can be complex. We recommend that you consult your attorney and tax advisor before creating a trust. Your attorney is also best prepared to create the documents you will need to establish your trust.
If you are considering naming JCBank as your trustee or successor trustee we prefer to review your plans and documents before your trust is completed. You may benefit from this also as we can often make helpful suggestions.
This information is not intended as legal advice. You should consult your attorney regarding your specific situation.
Securities and Wealth Management products and services are not deposits, not FDIC insured, not insured by any government agency, not bank guaranteed, subject to risk, and may lose value.