A trust is a financial vehicle by which the trustor is able to protect and shield assets from a variety of risks to ensure the benefactor receives the full intention of the assets designated. While this particular financial instrument dates back as far as the 5th century A.D., it has been a source of wealth protection for future generations to benefit from the trustor’s assets. Although the term “trust fund baby” has indicated a negative connotation that this particular investment vehicle is only for the fabulously rich, the reality is trusts can be set up at any asset level to allow for an ease of exchange to beneficiaries.
The purpose of a trust is to allow for the wishes of the trustor to be implemented without the risk of a third-party failure. For example, if the trustor were to leave a considerable amount of assets to a relative or close friend and expect them to adhere to their wishes, the trustor may be allowing the assets to be at risk. Even if the trusted relative or friend administered the assets with the best intentions, they may be vulnerable to divorce, lawsuits or other financial hardships that could put the assets at risk of not being distributed as the trustor intended.
When considering a trust, please keep in mind there are a few different types to consider:
- Revocable Trust: This is also known as a “living trust,” because the trustor is allowed to change the assets and property at any time. Even though revocable trusts do avoid probate, they may open the trustor to potential risk as creditors can still go after property and assets within the trust.
- Irrevocable Trust: When a trust is deemed “irrevocable” it is impossible to change or modify any aspect of it - Even the trustor cannot make changes after the it has gone into effect. For this type of trust, it is fully protected from any creditors or probate as the assets can only be used as exactly stated in the documents.
- Charitable Trust: For those who want to ensure their assets are given to their favorite charity or cause, a charitable trust allows for an easy transition of assets while, lowering and possibly avoiding estate and gift taxes.
When considering a choice of trusts, it is important to speak with a qualified financial advisor to help you select the right one for your current situation. This guidance will help ensure your most valued assets are transferred to the people or causes you care most about.
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Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
Indexes discussed are unmanaged and you cannot directly invest into an index. Past performance is not a guarantee of future results.