Expert Perspectives

Squire provides complete and personalized accounting solutions to meet your individual needs.

Expert Perspectives

Squire provides complete and personalized accounting solutions to meet your individual needs.

Trusts in a Nutshell

By Lincoln Flemming, CPA & CFP, 

We all hear about trusts from time to time, but what is a trust, and how does a trust work?  Are trusts only for the wealthy or can they also be appropriate for people of more moderate means?

What is a Trust?

A trust is a legal agreement in which a grantor transfers property to a trustee that holds and manages the property for the benefit of a beneficiary.


How Does a Trust Work?

There can be multiple grantors, trustees, and beneficiaries.  Additionally, the grantor, trustee, and beneficiary are not always 3 different people or entities.  Sometimes one person can fill more than one role.

The grantor spells out in the trust agreement who the trustees are, who the beneficiaries are, and how the trust property should be managed and distributed.  The trustee then administers and manages the trust property for the benefit of the beneficiaries according to the terms of the trust agreement and the law.

Trust property can include securities, businesses, life insurance, real estate, and other types of property.


Uses of Trusts

Trusts come in all shapes and sizes and are used to accomplish many important objectives:

  • Reduce taxes
  • Avoid probate
  • Provide for loved ones
  • Manage property for a minor or someone who has special needs or is incapacitated
  • Accomplish charitable and philanthropic goals
  • Spell out when, how, and to whom you want your assets distributed to after death
  • Protect assets from creditors and lawsuits


Revocable or Irrevocable

A trust may be revocable or irrevocable.  The terms of a revocable trust can be amended or cancelled after it is established.  The terms of an irrevocable trust generally cannot be cancelled or modified once it has been created except in limited situations.  Some trusts start off as revocable trusts but become irrevocable at a later date.


Inter-vivos or Testamentary

A trust can be created during the life of the grantor or at death.  An inter-vivos trust is a trust created during the life of the grantor and a testamentary trust is a trust created at death through the will of the decedent.


Not just for the Wealthy

Some people mistakenly assume that trusts are only for the wealthy.  It is true that the financial affairs of the wealthy can be complicated and oftentimes do involve the use of one or more trusts in order to accomplish their charitable, legal, tax, and personal goals. However, they’re not the only ones who benefit from a trust.

Although not everyone needs a trust, in many cases, trusts are also appropriate for people of more moderate means.  You don’t need a yacht or 23 Cayman Island bank accounts to benefit from having a trust.

Here are a few examples of when a trust can be useful:

  • Someone in your family has a disability
  • Protecting your assets is important to you
  • You want to avoid probate
  • Planning is required to avoid paying estate taxes
  • You want to provide for a surviving spouse for his or her life after which you want your remaining assets to pass to your children.
  • Your preference is that heirs do not receive all assets directly and immediately after your death.  Perhaps you want your children to receive a portion of their inheritance when they graduate from college, a portion when they get married, and the rest when they have children or are ready to purchase a home
  • You are worried about heirs squandering or losing their inheritance and want to put in place certain restrictions and protections.


Seek out Legal and Tax Advice

It is generally advisable to seek out appropriate legal and tax advice when dealing with or creating a trust.  An estate planning attorney can review your personal circumstances and let you know if a trust is appropriate for you as part of your estate plan.  If you do need a trust set up, an attorney can draft the appropriate trust agreement for you.

A tax adviser can help you understand any tax issues and tax return filing obligations associated with creating a trust, as well as discuss tax minimization strategies and relevant estate planning considerations.

Reach out to a Squire Advisor to discuss your specific situation and options.