What You Can and Can’t Do Through an Express Trust
An express trust refers to a legal arrangement where a trustee holds assets for the benefit of the beneficiaries.
An express trust can be beneficial in many ways; it provides a way of managing assets outside of probate, protects assets from creditors, and enables the settlor to control the use of their assets after death.
However, there are limits to what you can and can’t do, and it is essential to understand them before creating an express trust.
This article will discuss what you can and can’t do through an express trust.
What You Can Do
An express trust is a valuable tool for asset protection, enabling individuals to specify how their assets will be distributed or used in the future.
This may include providing funds for education, supporting a relative in need, or donating funds to a charity close to their hearts.
The flexibility of a trust allows assets to be managed according to specific wishes and needs, ensuring they are used effectively and for a defined purpose.
Moreover, assets held in a trust can be distributed without having to go through the probate process, which saves time and helps to reduce costs associated with administering an estate.
By establishing an express trust, individuals can have greater control over their assets and take proactive steps to protect their wealth over the long term.
What You Can’t Do
While it is essential to understand what you can do through an express trust, it is equally important to understand what you can’t do.
First, an express trust cannot be used to avoid creditors.
While the assets in a trust are protected from creditors if created under the right circumstances, existing creditors can still go after trust assets.
Second, you cannot use a trust to avoid taxes.
Taxes on trust income and distributions can apply, and the laws regulating the tax consequences of a trust are complex and involve different rules from personal taxes.
Choosing the Right Trustee
Another important consideration is who you appoint as trustee.
A trustee should be someone you trust to manage the trust assets for the benefit of the beneficiaries.
They must administer the trust in accordance with the trust’s terms, act in the best interest of the beneficiaries, and manage the assets prudently.
Often, people choose a family member or close friend whom they trust to carry out their wishes, but in some cases, it may be best to appoint a professional trustee, such as a bank or law firm.
Drafting the Trust
When creating an express trust, it is crucial to pay attention to the language and structure of the trust document.
The settlor, or creator of the trust, should work with experienced professionals to ensure that the trust is set up correctly, has clear instructions, and is legally binding.
The trust document should include specific details and instructions for the trustee to manage the trust assets and distribute them to the beneficiaries.
Review and Update
Finally, while express trusts are often established to last beyond the settlor’s lifetime, it is important to regularly review and update the trust to ensure that it reflects the settlor’s intentions and current laws.
Significant changes in financial circumstances, family relationships, or tax laws can impact the trust’s effectiveness, and the settlor should stay informed and be prepared to make updates or changes as needed.
Final Thoughts
An express trust can be an effective estate planning tool, providing flexibility, asset protection, and control.
However, understanding what you can and can’t do through an express trust is essential, and working professionals can help set up the trust correctly and ensure that it complies with the legal requirements.
The settlor must also choose a trustworthy trustee and stay informed and prepared to make necessary changes.
With careful attention and planning, an express trust can help you achieve your estate planning goals and provide lasting benefits for your loved ones.
Category: Family Finances
