Questions About Trusts

Answers to the most frequently asked questions about trusts

Few people understand the terminology and technicalities of trusts until they discover they need one ... and by then it may be too late. Use this list of frequently asked questions (and their answers) to help you better understand the reasons for trusts and the process involved in establishing them.

What is a trust?

A trust is a legal agreement between two parties, the person who creates the trust and the person, institution or independent trust company responsible for administering the trust, the trustee. The trustee manages the assets placed in the trust for the benefit of a third party, the beneficiary.

Who needs a trust?

Not everyone needs a trust, but most people should consider one. Trusts aren’t just for the affluent. Setting up a trust is an excellent way to control what happens to your estate, regardless of its size, to possibly reduce estate taxes and protect against the expense and aggravation of probate.

More than two million U.S. taxpayers have established trusts. Those who benefit most are married couples with net estates exceeding $4 million and single people with net estates exceeding $2 million; however, under the current tax law, these amounts will increase over the next several years.

The net value of an estate can be determined by adding the market value of all assets, including real estate, personal property, businesses, bank accounts, investments, IRAs or other retirement benefits, and life insurance, then subtracting liabilities.

Unlike wills, trusts are not subject to probate and therefore allow you to keep your affairs private.

Will or trust? Which is best?

Most people need both. A big advantage of a trust is that it is generally the best strategy to avoid probate and protect financial privacy. Wills must be validated by probate court, a lengthy and expensive process that can take six months to two years and, in some cases, even longer. Probating a will may involve attorney’s fees, executor’s commissions, administrative and other court costs. Unlike wills, trusts are not subject to probate and therefore enable you to keep your affairs private and minimize settlement costs and estate taxes.

Why set up a trust?

There are many reasons to set up trusts. Married couples often realign the ownership of their assets to save substantial federal estate taxes and pass more on to their heirs. Rather than owning assets jointly, they choose to own assets individually so that they can each take full advantage of the increasing unified credit amount. Preserving each spouse’s unified credit can save hundreds of thousands of dollars in estate taxes.

If the time comes that you are no longer able to handle your own affairs, trusts can ensure that there will be someone who is experienced and objective to “mind the store.” If there is a serious illness or disability, a trust ensures that a plan is in place to take care of your needs and those of your loved ones.

When the trust is managed by a full-service trust company, other professional services can be provided, such as bill paying.

Business owners can use trusts to save on estate taxes when passing along businesses to heirs.

Trusts are also useful for blended families with spouses or children from previous marriages. The trust can spell out exactly how marriage affects the inheritance of children or grandchildren from a first marriage.

Naming an independent trust company removes the emotional element often associated with friends or family members.

Who sets up a trust?

Usually attorneys draft trusts.

What about fees?

Generally, fees for trust services are spelled out in the trust document. Under normal circumstances, they are calculated annually, based on the level of responsibility assumed by the trustee and the value of the assets in the trust. Fees are charged quarterly or monthly and a portion may be tax-deductible.

How are trust assets invested?

Ultimately, it is the purpose of the trust that determines how the assets are invested, and it is the responsibility of the trustee to see that the purpose is carried out. Often, the person who creates the trust will name a professional investment manager to work with the trustee and make investment recommendations based on the goals of the trust, the needs of the beneficiaries and the time horizon.

Is a trust right for you?

Even people of moderate means may be subject to estate taxes, which could be significantly higher than income taxes.

But saving on taxes isn’t the only reason for trusts. Some families want to plan for long-term care or education for their children or grandchildren. Others want to provide for a favorite charity. One thing is certain, if a trust is needed, the time to plan for it is now.

How do you choose a trustee?

Many people prefer to name an independent trust company to handle their affairs. Trustees who don’t deal with trusts on a regular basis can be overwhelmed by the duties required of them. Also, naming an independent trust company removes the emotional element often associated with friends or family members and assures that your wishes are fulfilled exactly as they are spelled out in the trust.

Why choose Raymond James Trust, N.A.?

There are several advantages to naming Raymond James Trust as trustee. Unlike other providers of trust services, our skilled professionals deal exclusively with trust issues. The solutions our trust experts provide are never “one size fits all,” but are individually tailored to fit personal needs.

In addition, Raymond James Trust offers:

  • Professional management by trained experts
  • Impartiality in making investment decisions and in dealing with beneficiaries
  • Commitment to placing our clients’ interests first and serving them with integrity, innovation, quality and hard work
  • State-of-the-art technology to serve clients better and faster
  • The confidence that comes from knowing your trustee is subject to regular audits by external auditors and government regulators

Trust terms

Trusts
A trust is a legal agreement between two parties – the person who creates the trust and the trustee, who may be a person, an institution or an independent trust company.

Trustee
A trustee is the person, institution or independent trust company managing the trust. A co-trustee manages a trust in cooperation with a family member or someone else.

Grantor
The person creating the trust.

Beneficiary
A beneficiary is the person, institution or organization that receives the proceeds from a trust.

Will
 A basic will simply states who will become the guardian for underage children, who will receive specific assets and who is responsible for managing the estate and implementing your wishes.

Living will
A living will is a healthcare directive. It names a person to decide what efforts, if any, should be employed to help keep the client alive should he or she face a life-or-death situation, namely, whether he or she would want to be resuscitated or kept alive by artificial means.

Durable power of attorney for financial affairs
This document names a person responsible for making all legal and financial decisions immediately upon signing the document or should you become incapacitated.

Durable power of attorney for medical affairs
This healthcare directive assigns responsibility to someone to make decisions about medical care in the event that you cannot. In some states, the living will and the medical power of attorney may be combined into a single document.

Personal representative
This person or corporation is named in your will to settle your affairs after you've passed away.

Contact your financial advisor today for more information about Raymond James Trust or other estate and charitable planning topics.