The recent pandemic induced by the Coronavirus reveals how unexpected circumstances can result in loved ones being lost before their time. When a person dies unexpectedly they may fail to have a plan in place to leave their assets to a successor. This can cause confusion and also make those receiving the assets pay unnecessary legal fees and taxes. Fortunately, one can avoid leaving matters unattended with a trust agreement
A trust agreement allows you to transfer ownership of certain assets to another individual, who maintains the assets and uses them for the benefit of a third person, usually assigned by you.
This sounds confusing but can have significant benefits to those on the receiving end of the assets. The following is a short write-up on this topic presenting why this form of legal protection is essential for every individual.
What is a Trust Agreement?
As previously mentioned, this document enables the Trustor (you, the owner of the asset(s)) to legitimately shift the ownership of specific financially valuable properties to a Trustor (another individual you trust) to be kept and maintained for beneficiaries assigned by the Trustor (you).
The assets a Trust Agreement covers may include real estate, money, securities, or business interests. Once this legal document is created, it becomes a legal entity – similar to a corporation – and can own properties and other investments. In some cases, the trust may have its own taxpayer identification number and can file income tax returns.
Why is a Trust Agreement important?
While the definition of a trust agreement may seem strange, it is relevant in many situations. For example, it enables people to organize their assets and pass them on effectively if they die unexpectedly. Others use this document to manage their wealth, gain tax advantages, protect their property from creditors, keep their financial history out of public records, and much more.
Possessing this legal document enables you to protect your assets from individual taxation since you no longer control the assets personally; therefore, they cannot be seized anytime in the present or future, as long as the document remains valid.
As mentioned before, a Trust agreement can enable you to organize one or more assets in case of your untimely demise. However, several types of trusts exist with different individual benefits and aren’t all useful in transferring your investment to a loved one.
Fortunately, you can achieve this goal with a Revocable Living Trust, a document that enables you to transfer properties – especially estates – to your loved ones after death. The legal paper derived its name “Trust” from the fact that the Trustor is still alive and can revoke the agreement while they are still alive.
In other words, the Trustor remains in control of the assets until they are deceased, which passes the property to the beneficiaries. This document’s benefit is that it requires no additional court or attorney for the repossession phase; and the valuables are immediately transferred to the beneficiaries after the Trustor’s death.
Difference Between a Revocable Living Trust and a Will
By default, Wills and Trusts function as tools for proper estate planning, enabling you to protect your assets and transfer them to your preferred individuals. However, these two documents are different in several ways, especially during the execution.
The Will’s duty is to express the wishes of a deceased person in various ways, including transferring valuable items and assets to friends, families, or charities. This document of wishes will remain dormant and inactive until the owner’s death.
On the other hand, a Revocable Living Trust handles only assets and does not cover wishes like the naming a guardian for your children or anything or the sort. The document enables you to seamlessly transfer valuable properties to your loved ones (beneficiaries) and can be changed while the Trustor is still alive.
The document only becomes active after the Trustor’s death, and the properties can be repossessed accordingly. Another crucial factor that separated this document from a will is that it requires no court or attorney presence to execute. The asset immediately becomes the property of the beneficiaries after the Trustor’s death.
Ultimately, a Trust agreement is a document you should possess if you wish to transfer financially valuable properties to your beneficiaries after your death or protect those assets from legal and tax issues.
However, before running to the nearest office to acquire this document, ensure you contact an expert to assess your situation and conclude whether it is the ideal method for you.