When was the last time you updated your estate plan? Whether you’re nearing retirement or just starting your career, it’s always a good time to get your financial affairs in order. In this comprehensive guide, we’ll break down everything you need to know about personal trusts, an important part of many estate plans. Learn how to protect your assets and save your beneficiaries from undue stress.
What is a personal trust?
A personal trust is a legal entity created by an individual in which that individual and/or their family members are also named as beneficiaries. The purpose of a personal trust is to manage property and/or other assets for the benefit of the settlor/beneficiary. Personal trusts also offer enhanced privacy and quick distribution of assets to beneficiaries.
Are Trusts and Estate Planning the Same as Wills?
Estate planning is the process to organize your assets and family affairs in advance and make a plan for what you want to happen after your death. Both trusts and wills can be a part of the estate planning process.
Both trusts and wills are legal documents. A will sets out your wishes for the distribution of property and assets, as well as who will care for any minor children you may have. Everyone should have a will, regardless of the size of their estate.
In addition to a will, a personal trust can provide more certainty about how your wishes will be carried out. The other main difference between the two is the succession process.
Probate is a legal process to administer a person’s estate after their death. Even if you have created a will, the court still needs to prove that your will is legally valid. However, dying without a will is even more difficult for your heirs, as state law will determine how your assets and property will be distributed. You can learn more about Vermont’s intestate succession statute here and from New Hampshire here.
To make the process as easy and quick as possible for your already grieving loved ones,
Using a personal trust can allow you to avoid spending months working through the probate process.
A personal trust will carry out your wishes immediately, without undue burden on your heirs. Trusts can also be used to reduce the estate tax burden.
Finally, it’s also important to name or update the beneficiaries of your financial accounts, such as investment, savings, and retirement accounts, as well as life insurance policies. The transfer of these assets is dictated by whoever is designated as their beneficiary.
5 Types of Personal Trusts You Should Know About
Learn about the different types of personal trusts and their benefits that we offer at Union Bank:
- Life Trust: It allows you to control and access your assets during your lifetime, then distribute them after your death according to your wishes and without going through the probate process.
- Marital Trust: Useful for couples with children from previous marriages who want to pass assets to their surviving spouse while supporting their individual children as well as any children they have together.
- Testamentary Trust: Also known as a “trust testament” because it is written along with your last will and testament. A good option to provide for a minor beneficiary child and/or a disabled beneficiary. You can also reduce estate taxes.
- Charitable foundation: If you wish to transfer money or property to your favorite charity, this type of trust can be set up to benefit a charity, as well as individual beneficiaries, if desired. It can also provide you with income for a period of your life if you wish.
- Supplemental Needs Trust: Specifically designed to serve a family member or child with special needs who will need care throughout their lives. Gives you peace of mind that your loved one will be cared for after you’re gone.
What is a revocable trust vs. an irrevocable trust?
Some trusts are revocable or irrevocable in nature. Other times, you can choose whether you want a revocable or irrevocable trust. Not sure which option is right for you? Our wealth management team can help! Here is the difference:
- Revocable Trust: It can be changed or terminated by the grantor during his lifetime and it will become an irrevocable trust at his death. Most trusts can be set to be revocable. Revocable trusts prevent probate and allow you to make changes due to a change in your family or financial situation.
- Irrevocable Trust: Once created, this type of trust cannot be changed or terminated. Most trusts can be established as irrevocable. The main benefit is that assets in an irrevocable trust are not considered personal property, so they do not count toward estate taxes owed, and they are also excluded from bankruptcy and creditor claims upon your death.
What is Estate Tax in VT & NH?
Depending on where you live, your estate may be subject to federal and state taxes. Here’s what you should know:
- Currently, the federal estate tax threshold is $11.7 million. Therefore, if the total value of your estate is less than that, you will not have to pay federal estate tax.
- In Vermont, the threshold is currently $5 million for the gross value of your estate plus adjusted taxable gifts made within two years of your death. Therefore, he may be subject to state, but not federal, estate tax if his estate is worth more than $5 million but less than $11.7 million. Properties with a value of less than $5 million will not be subject to any property taxes.
- New Hampshire does not have a state estate tax.
The Importance of a Wasteful Clause
With a wasteful trust or clause, you give the trustee power over how or when inherited funds are used. This can be especially helpful with a trust for a minor child or anyone who thinks they could wear out the trust quickly. With advance planning, you can help the beneficiaries of your trust by making sure the funds last as long as they are needed.
Let us help you with your estate and fiduciary planning needs.
Union Bank is your local wealth management resource in northern Vermont and northern New Hampshire. We approach personal trust management with the same core values we bring to all of our services: attentive, personalized customer service to help us understand you and your financial goals. When it comes to planning for your family’s future, trust Union Bank to help you make the decisions that are best for you and your beneficiaries. Contact our Wealth Management team today or visit your nearest office.
