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How a Trust Can Help You Reach Your Financial Goals

A Place for Mom Staff
By A Place for Mom StaffFebruary 6, 2015
How A Trust Can Help You Reach Your Financial Goals

Saving, investing, retirement planning and estate planning are all focused on one thing: the future. What kind of lifestyle do you want to live later in life, and what sort of legacy would you like to leave behind for your children, grandchildren, or a cause close to your heart? There are different ways to build toward the future you envision, and it’s important to consider all the possible tools at your disposal — including trusts.

How A Trust Can Help You Reach Your Financial Goals

Learn more from Merrill Edge about the benefits of a trust and how a trust could help you reach your financial goals.

Understanding Trusts and Creating Goals for Your Finances

Contrary to what many people think, trusts are not reserved for the wealthy. People from all walks of life may benefit from a trust. While they are not quite as popular as wills, trusts are becoming more widely used as many discover their potential benefits. A trust can help protect assets, reduce tax obligations and define the management of your assets in a private, effective way.

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What Is a Trust?

A trust is a financial vehicle that allows you to safely give money or property to other people. To get a bit more technical, a trust involves a three-part agreement in which the owner of an asset — the trust’s “grantor” — transfers the legal title of that asset to a trust for the purpose of benefiting one or more beneficiaries. The trust is then managed by one or more “trustees.” Trusts may be revocable or irrevocable and may be included in a will. Here are the differences between the two:

1. Revocable trust: Can be changed or revoked at any time. For this reason, the IRS considers any trust assets to still be included in the grantor’s taxable estate. This means that the grantor must pay income taxes on revenue generated by the trust and possibly estate taxes on those assets remaining after his or her death.
2. Irrevocable trust: Cannot be changed once it is executed. The assets placed into an irrevocable trust are permanently removed from a grantor’s estate and transferred to the trust. Income and capital gains taxes on assets in the trust are paid by the trust or passed on to beneficiaries. Upon a grantor’s death, the assets in the trust may not be considered part of the estate and therefore may not be subject to estate taxes. Most revocable trusts become irrevocable at the death or disability of the grantor.

Benefits of a Trust

Generally speaking, most people use trusts to help maintain control of assets while they’re alive and medically competent, as well as indirectly maintain control of the disposition of assets if they’re medically unable to do so or in the event of death. Although trusts can be used in many ways, they are most commonly used to:

  • Control assets and provide security for the beneficiaries (of whom can be the grantor in a revocable trust)
  • Provide for beneficiaries who are minors or require assistance managing money
  • Avoid estate or income taxes
  • Provide management of estates
  • Avoid probate expenses
  • Maintain privacy
  • Protect real estate holdings or a business

The Role of a Trustee

The trust’s grantor names a trustee to handle investments, manage trust assets, and make decisions regarding distributions. The grantor can work with the trustee on major decisions in a revocable trust, or the trustee can be assigned full authority to act on the grantor’s behalf.

A trustee may be an individual, such as an attorney or accountant, or it may be an entity that offers experience in such areas as taxation, estate tax law, and money management. Trustees have a responsibility – known as “fiduciary responsibility” – to act in the beneficiaries’ best interests.

Different kinds of trusts are designed to meet different needs and objectives. According to a recent survey by Merrill Edge, almost two in five of those who get investment advice online (39%) and have a trusted financial advisor (36%) feel they are making some of their best decisions when it comes to investing for the future. Your financial advisor can help you determine if a trust is a tool that you might want to consider to help you pursue your future financial needs.

About the Author

Sharon Miller is head of National Sales for Preferred Banking and Merrill Edge at Bank of America.

Banking products are provided by Bank of America, N.A., and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation. Merrill Edge is available through Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S), and consists of the Merrill Edge Advisory Center (investment guidance) and self-directed online investing. MLPF&S is a registered broker-dealer, Member SIPC and wholly owned subsidiary of Bank of America Corporation. Investment products include: Are Not FDIC Insured, Are Not Bank Guaranteed and May Lose Value.

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

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