Trusts are an important part of planning for a family since they can be used to protect assets from risk by passing and transferring ownership. They are used to make sure some family members have access to specific assets in future generations and can be utilized to ensure a family member will have care and direction if they become incapacitated.
Here are seven things you need to know about trusts.
1) The big parties of a trust are a settlor, who makes a property transfer, and the trustee, who receives the transfer. Trustees are those who a settlor has a lot of confidence in and will trust, and it’s usually best if the two people are not related. Settlors also have to decide if they will manage the trust or delegate responsibility to the trustee. Trustees have a responsibility to properly manage the trust. Beneficiaries are those who the trust is established before and can be individual people or a class.
2) A family trust is not allowed to exist for more than 80 years. A deed must give a specific time and date when the trust will finish, called the date of distribution. Trustees usually have the ability to end a trust before the date or can even extend the distribution date if they choose.
3) A deed will say who has the ability to appoint additional and new trustees, and often gives the ability to remove them. In general, the settlor has the power to do both, but if the deed is not specific, then trustees can team up to appoint new ones.
4) Trusts usually operate in the same fashion as a person. Like humans, trusts have the legal ability to hold property, raise a mortgage, have a bank account, and hold other types of assets and investments. It only has these abilities based on the powers and responsibilities spelled out in the actual trust deed.
5) Trusts can accept assets at any time. This usually occurs when a settlor sells assets or the trust actually buys some from an outside party. If a trust does not have the money to purchase an asset, trustees must sign a document that lets a seller know the trust owes them money. Any income that comes from assets a trust has does not go to the settlor, but stays in the trust income.
6) A settlor maintains the ability to cancel some debt of the trust up to $27,000 per year without incurring a gift duty. The trust can also make regular payments to a settlor if there is debt that needs to be cleared up.
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7) Income from a trust will be taxed as trustee income or will fall into the hands of a beneficiary as a tax responsibility pertinent to someone’s individual tax rate, only if they are over 16 years old. Trustees decide how beneficiaries receive payments and when.
Keep the following seven things in mind about trusts if you have to navigate through the process. It can sometimes be confusing and difficult to actually set one up, especially if you are trying to figure out the best steps for a family member. Our experts can guide you through the process and give assistance in finding good trustees and settlors so the entire trust process can be a stress-free affair.
Do you have a question about trusts? Click here to contact the experts at Hunsberger Dunn LLP today!
Courtesy of Cuselleration