Transferring wealth has always appeared to be a daunting task. Without the proper guidance and help from experts, developing a holistic plan for leaving your legacy to your family or loved ones can be a difficult and complex task to complete. There are a variety of paths to take to transfer your wealth, and it is important to understand your options before choosing a path.
One of the most trusted and efficient methods of transferring your wealth and legacy is by establishing a trust for your wealth to be distributed in the fashion you want. There are many nuances to a trust including different types of trusts, language involved in creating a trust, and what a trust does.
What is a Trust?
A trust is a fiduciary relationship composed of three parties, according to ThomsonReuters.com. The first party is the trustor who provides the assets that make up the trust funds. Assets can be monetary or physical, such as property, and the trustor has the final say of when and where the assets are distributed.
The second party is the trustee. The trustor gives a trustee the right to hold title to assets for the benefit of a third party. The third party is the beneficiary, who is the party which will receive the contents of a trust at a designated time period.
The purpose of a trust is to establish legal protection to the assets outlined in the trust in order to transfer the assets in their entirety to the beneficiary (more info). Trusts are useful for transferring wealth as they save time, reduce paperwork, operate exactly as the trustor dictates it to, and they reduce or remove inheritance tax or estate taxes when the transfer of wealth is initiated.
Why a Trust Matters to You?
Regardless of your financial situation or personal situation, if you have a family or loved ones close to you that you wish to pass along your wealth to, it is important to begin planning your estate early. Establishing a trust not only provides you peace of mind knowing that your wealth will be handled properly once it is set to be transferred, but it can also allow your assets to follow an investment plan and grow in the meantime.
A simple estate plan or will that note who receives assets following an individual’s passing is not enough to ensure your wishes are followed. Furthermore, a trust can be a useful strategy to help mitigate inheritance tax.
Directed Trust Approach
One of the most popular forms of trust building to transfer assets is the directed trust approach.
The directed trust approach divides the duty of a trustee into two distinct categories and entities. Directed trust approach separates the investment duty and how investments of the trust perform as well as the administrative duties of a trust. This arrangement allows for trustors to work with their financial advisor in this capacity and normally someone they are familiar with and trust. It also allows for the administrative duties of a trustee to be carried out by a separate entity or firm.
Fragasso Financial Advisors, an investment and financial planning firm based in Pittsburgh, PA, recently posted a blog discussing this topic titled, Preserving Your Legacy: Why Trust Services Matter. Please take the time to read it if you would like to learn more about trusts and how they can help you protect your assets.
Investment Advice offered by investment advisor representatives through Fragasso Financial Advisors, a registered investment advisor.