Advice to keep your wealth secure.
As a high level executive, you have worked hard to get where you are and reach the level of financial success you have achieved. Ideally, you will be around for a long time to enjoy the fruits of your labor. However, it is an uncertain world we live in, and it pays to plan for any possible situation to ensure you protect your assets and your family.
If you are earning a significant amount of money in your career and have a family, you will naturally want to be sure the money you’ve earned is protected for them if anything happens to you. You will also want to ensure that the money is used for the purposes you intend and not wasted. The same thing is true if you don’t have a family to whom you want to leave money but do have friends or charities you want to support with your wealth if you aren’t here to do it yourself. In these cases, setting up a trust fund is almost always the best solution to your wealth and estate planning concerns.
A trust fund keeps your money protected for your minor children until they reach a certain age when you feel they will be mature enough to handle it on their own. It can also be used to set aside money for other people, with stipulations on how it can be accessed and on what it can be spent. In setting up a trust, you will choose a grantor, also sometimes referred to as a trust manager, settler or trustor. The grantor as the authority to manage and distribute the assets in your trust until they are eventually given to their intended recipients.
Distribute Finances as Needed
The grantor of the trust can also distribute finances and assets from it on an as-needed basis to a beneficiary; in these cases, the beneficiary who is requesting a distribution must make a case to the grantor as to why he or she needs it at this time. It is up to the grantor to approve or deny any request for a distribution before the beneficiary fulfills all of the inheritance requirements of the trust.
If you decide to set up a trust fund for your children or anyone else, you should work with a financial planner who is highly experienced in trusts setup. This is because setting up a trust is a highly time-consuming and legally complex endeavor. In order for the trust to be iron-clad, a great variety of legal intricacies must be handled with expert precision. Otherwise, there may be legal room for your beneficiaries to question or challenge the provisions of your trust. A trust fund professional will ensure that this is not the case and that your wishes for your heirs cannot be questioned in court after you are gone.
One additional important benefit of founding a trust is that it hastens the process of probate. With a substantial estate, your heirs may discover themselves tied up in the bureaucracy of probate for years to come. A trust permits the finances and physical assets of your estate to be released and distributed to either your estate or your trust’s grantor with great haste, so it does not linger in the hands of the legal machine for very long. This is a much more desirable situation for everyone concerned with your estate, as well as for you, as your assets are far more secure in the hands of your heirs or grantor than with disinterested parties in the courts.
In addition to protecting your money and assets for your heirs and beneficiaries, there are some other important benefits of trust funds.
Tax Benefits
Trust funds can have profound money-saving tax benefits if they are set up correctly. This is usually accomplished with an irrevocable life insurance trust; it is the most common type of trust set up to save tax money. In a typical scenario without a trust, all of the money from your life insurance is given back to your estate if you die, and it becomes taxable income for your estate. This can be a significant financial burden for your heirs, especially if the value of your estate is substantial.
However, with an irrevocable life insurance trust, you can practice intelligent wealth management. This type of trust protects the life insurance benefit from being subjected to estate taxes. A decedent with distributable assets typically has an estate tax burden that heirs must pay before taking possession of any inheritance. With an irrevocable life insurance trust, your beneficiaries still get the money from the policy, but it is not considered a taxable part of your estate.
Managing Your Wealth
A frequent concern of those with substantial assets is how their children will handle them. If something were to befall you and you were no longer there to oversee your finances on behalf of your children, could you truly be certain they would handle the money and physical assets responsibly?
A common scenario is this: A person with substantive wealth wants to leave a million dollars to each of his or her children. However, this person is concerned that the children will squander the wealth in a frivolous manner, leaving them with no financial security for their futures. The parent wishes to ensure a secure financial future for his or her children, even if it means protecting them from themselves. Therefore, the parent approaches a financial planner to set up a trust fund for each child. Stipulations are attached to each trust that mandate a certain level of education, a particular age, or a demonstration of sufficient personal maturity before the assets in the trusts will be distributed to the beneficiaries to do with as they please.
Common stipulations for trust inheritance for children include graduating from college, being employed full-time, owning a home, being married, being a parent, or having a certain amount of money of their own in savings. The individual who is setting up the trust, of course, is free to determine their own personal preference for inheritance stipulations.
If you are concerned about your children being able to meet their financial needs before they come into full inheritance of their trust, you can arrange for the grantor to pay an annual allowance to each of your heirs and beneficiaries. The money will come directly out of the trust. Depending on whether the trust is earning interest, there may be less money left over for your beneficiaries to inherit after the annual allowances are distributed; however, an interest-bearing trust may still support the full value of the original trust fund when your heirs come into full inheritance. This is something your grantor can discuss with you when you are setting up the trust.
If you elect to provide an annual allowance for your beneficiaries, you may include stipulations in the trust regarding what the allowance may be used to purchase. Your heirs can be made accountable to the grantor to prove they are complying with the terms of the trust in how they spend their allowance. To eliminate any possibility of the allowance being spent inappropriately, you may also choose to give your grantor the power to pay your heirs’ expenses for them out of their annual allowance; this way, no actual cash ever touches the hands of your heirs until they come into full inheritance of the trust.
Providing for Charities
It is not merely your children or other relatives who can be beneficiaries of a trust. You may also elect to provide for charities that are important to you. This is done by establishing a charitable trust. A charitable trust is a separate entity from any other trusts you establish and is used for the sole purpose of supporting one or more charitable causes.
With a charitable trust, you can arrange to manage distributions of money from it yourself while you are living. Once you are gone, your trust grantor will have the power and responsibility to make regularly scheduled distributions to your charity or charities, either annually or on another schedule specified by you. Alternately, you may elect to have the full amount of the trust distributed to your charity or charities after your demise, at which point the trust would be liquidated and dissolved.
Financial Safety
A trust fund protects your finances and assets like no other investment vehicle can accomplish. Establishing one is an investment not only in the future of the wealth you’ve worked diligently to build but in the future of the heirs and charities you want to protect and support after you’re gone. A trust fund is made to weather virtually any outside economic storm. It isn’t subjected to the whims of Wall Street. Once your money is in the trust fund, it is safe from market conditions that may put a dent in your other investments. It sits quietly guarded in its own insular world, guarded by your careful work with your grantor in establishing it, until your beneficiaries are ready and qualified to receive it.
The Final Word on Trust Funds
These are all profound reasons to establish a trust fund if you have a significant amount of wealth. It is costly to establish one, as the creation of a proper trust fund is a complex thing. However, if you know and are confident that your wealth will last beyond you, it is well worth it to establish a trust to protect what you have labored to achieve and provide for our beneficiaries as you deem fit.
If this situation describes your own, talking to a financial planner about setting up a trust as soon as possible is recommended. The sooner you create and establish your trust, the sooner your money will be protected for those you love and the causes you believe in. When you have significant wealth, a trust fund is a crucial element of intelligent financial planning.
