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Distributing assets to loved ones through a trust

Posted March 12, 2014 in Advice Column, Clive

For most people, the ultimate goal of their estate plan is to pass assets along to their loved ones. One of the most common and versatile ways to accomplish this goal is through the creation of a trust.

There are three main parties to a trust:
    •    Grantor: the person who creates the trust.
    •    Trustee: the person or institution that manages the assets of the trust.
    •    Beneficiaries: the person or group of people who receive the benefits of the trust.

While there are many different kinds of trusts, today we will focus on two main types:

•    Testamentary trust: a trust created by a will. A testamentary trust does not have any power or hold any assets until the death of the grantor. Upon the death of the grantor, assets are transferred into a trust for the benefit of the beneficiaries.

Many wills contain testamentary trusts for the benefit of minor children. For example, a will may have a provision, which creates a trust only if the grantor passes away before a child reaches a certain age. If that occurs, assets are managed by the trustee who makes distributions of assets to the child as directed by the will. Once the child reaches the established age the trust terminates and the remainder of the assets are distributed to the child.

•    Living trust: a trust that is created while the grantor is alive. With a living trust the grantor transfers assets into the trust during life. The trust also contains a provision for how assets are to be distributed after death. The grantor can be the trustee or name another person or corporate fiduciary such as a bank trust department to serve as trustee. The trustee manages the assets that are held in the trust, which often includes the management of an investment portfolio. The grantor ultimately directs when and to whom distributions from the trust are made.

For example, a living trust may provide for income from investments to be paid regularly to the grantor or to other beneficiaries. The trust may also provide for regular distributions to continue, even after the death of the grantor, for the life of the beneficiaries.

A trust, whether testamentary or living, can be tailored to the individual needs and desires of the grantor of the trust. When properly drafted trusts can be an effective and efficient way to transfer assets to loved ones.

Information provided by Nathaniel Tagtow, JD, assistant vice president and trust officer, Lincoln Savings Bank, 13523 University Ave., Clive, 515-221-9876, nathaniel.tagtow@mylsb.com.

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