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What is a trust?

What is a trust:

A trust is a fiduciary arrangement in which a trustee holds title to property for the benefit of a beneficiary. The grantor who creates the trust can be both the trustee and beneficiary. Trusts can be either revocable or irrevocable.


Revocable "Living" Trust:

A revocable trust provides for management of your assets during your lifetime and after your death. You are the beneficiary of the trust during your lifetime. By themselves, revocable trusts do not avoid estate tax. However, many trusts establish a bypass trust along with a marital deduction trust at death to avoid taxes.


Advantages:

  • As long as you are capable, you can act as trustee and retain control over your assets.
  • You can amend or terminate a revocable trust at any time.
  • At incapacity, there is no need to appoint a guardian of a disabled person, since the successor trustee steps in to manage the assets.
  • The trust is not open to the public, only beneficiaries see the trust provisions.
  • If assets are transferred to the trust, there is no probate proceeding.
  • You can provide protection for special beneficiaries, such as an aged parent or disabled child.
  • You direct how property is distributed after your death.

Disadvantages:

  • Asset transfers must be completed to avoid probate, but an agent under a power of attorney may be given the power to transfer assets to your trust.

What are tax consequences?:

  • You continue to use your social security number to report income while you are acting as trustee.
  • No separate income tax return for the trust is needed while you are living.
  • You can still take the capital gain exclusion on sale of principal residence.
  • Your principal residence will qualify for the homestead and senior real estate exemptions.
  • At death, trust assets still receive a step-up in basis to date of death values.