Trust accounts are managed by a trustee on behalf of the grantor, who may establish a revocable or irrevocable trust to protect funds or provide access to them in the event of death. Tax advantages may also be available, but consulting a lawyer and financial advisor is recommended.
Trust accounts are financial accounts that are managed by someone on someone else’s behalf. The person who manages the trust is known as the trustee, and in some cases, the trustee may also be the grantor, the person who established the trust in the first place. There are a number of ways trust accounts can be used, and people interested in establishing one should consult a lawyer and financial advisor for more information on the details of their situation.
Trust accounts generally fall into two categories: revocable trusts and irrevocable trusts. A revocable trust is a trust over which the grantor retains control. The grantor can decide to change the terms of the trust or dissolve it entirely. On the other hand, with an irrevocable trust, the grantor gives up the right to control the trust.
One reason to establish a trust is to protect the funds, if a grantor believes that the trust beneficiary cannot independently manage the funds. Parents can, for example, set up trusts for their children that pay out money at set intervals or for set expenses, with most of the money remaining untouchable until the children reach a certain age. Such trusts are also used to ensure that children have access to financial security in the event of the death of one or both parents.
A trust can also be set up to provide people with access to funds quickly in the event of your death. In a simple example of a revocable trust known as a living trust, family trust, payable on death trust, or Totten trust, the grantor retains control and can continue to pay funds into the trust, and when the grantor dies, the funds in the the trust is immediately released to the beneficiary. This avoids probate and can provide funds to people when they need it most, during funeral planning and estate handling.
With some types of trusts, there may be tax advantages. In the case of irrevocable trusts, for example, because the trustee is relinquishing rights to the funds, you may be offered a tax break. The specifics of tax when it comes to trust accounts can be very complicated, and people would be advised to consult tax professionals before making any decisions. It is also important to confirm that a tax professional has experience handling trusts to ensure that trust accounts are properly represented on tax returns.
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