March 1, 2022
A trust is a wonderfully flexible property management tool. A living trust is established during life, typically for one’s own benefit. A testamentary trust is established by will for the benefit of others.
A trust beneficiary might naturally wonder, why shouldn’t I simply receive my inheritance outright? Are there advantages to receiving property in trust instead? There are many advantages, including:
• Professional asset management. Portfolio management is not a trivial undertaking. When a corporate fiduciary is asked to handle the investments, the beneficiary gets all the benefits and none of the burdens of wealth.
• Protection from creditors. An irrevocable trust is an independent legal entity. Trust assets can provide for the financial support and protection of several beneficiaries without becoming subject to the claims of creditors of any beneficiary.
• Potential transfer tax savings. Estate or gift taxes may be due when a trust is created (depending upon the size of the trust and the total amount of taxable transfers the grantor has made). Such taxes are no more than would be imposed upon an outright trans- fer of the same amount. However, the trust can provide for many beneficiaries, sometimes in different generations, without trigger additional taxes.
• Income tax benefits. Income tax deductions are available for creation of charitable trusts that meet tax requirements. Trusts may also shift income to family members who are in lower tax brackets, to lower the family’s overall tax burden.