Part of every business owner’s exit strategy should include estate planning. Estate planning often includes a trust, but what is a trust and why do I need one? Synergetic Finance founder and author Joseph M. Maas explains trusts in his book, “Exit Insight: ‘Getting to ‘Sold!’” The following is an excerpt from pages 179-180.
A trust is an arrangement in which property is held by one party for the use of another, and it is formidable in establishing how the property within the trust will be used and maintained. There are a variety of trusts to choose from, each having a specific purpose. Your financial planner will discuss your options with you, and together you can select the trusts that best fit with your strategic plan to maximize your estate and minimize your taxes and costs. Here is an explanation of some of the trusts that are available.
Revocable Living Trust
A revocable trust, also called a revocable living trust, is a trust that can be altered or revoked by the trustor at any time. This allows the person who created the trust to keep complete control of the included property while also removing the property from the probate process. Should death occur, the trust becomes irrevocable and the trust controls the distribution of its included properties, not the decedent’s will. A revocable trust avoids probate, avoids public knowledge of its contents, avoids inclusion if the deceased’s will is contested in court, and provides a course of action in case of incompetence or incapacity.
There are details to know, and your financial planner will safeguard your estate with ongoing diligence as circumstances change. Some properties are best not included, such as certain depreciating assets and S corporation stock, and there are a variety of issues that will be either applicable or irrelevant, such as making gifts from your revocable living trust. Your planner is expert with guiding your path through the many trust considerations available to you.
An irrevocable trust is a trust that cannot be changed by the trustor, and can only be modified by the beneficiary of the trust. An irrevocable trust benefits the trustor by removing the property from the trustor’s estate, which eliminates the property from probate and tax liability, as well as any income generated by the assets. Property held in trust can be a business, life insurance policies, cash, investment property like stocks, bonds, and real estate, and more.
Copyright © Joseph M. Maas for Merrell Publishing 2014-2015
In our next post, we’ll talk about other types of trusts.
Want more information about exit planning or estate planning? Buy a copy of “Exit Insight” for online at Merrell Publishing or Amazon. A small investment today will give you great peace of mind later!