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A trust is a legal arrangement where a person or a company (trustee) holds assets for the benefit of another person or group of people (beneficiaries). It is a legal arrangement used for years to handle assets and provide for heirs. Trusts offer several advantages, including tax planning, asset protection, and the ability to manage the distribution of assets. The settler can establish trust during their lifetime or through their will, which becomes effective upon their death.
How Trusts Work
Trusts work as a legal entity created when an individual (the settlor) transfers assets to a trustee, who then handles those assets to benefit the trust's beneficiaries. They are commonly used for estate planning to ensure that assets are distributed to the intended recipients and can also provide tax benefits.
Furthermore, a trust is created when an individual (the settlor) transfers assets to a trustee to manage for one or more heirs. The trustee is accountable for handling the assets according to the terms of the trust, which are outlined in a legal paper called a trust deed. The trust deed defines the beneficiaries, the assets in the trust, and the rules controlling how the trustee should oversee the assets.
Advantages of Forming a Trust
Trust regulations can be used for different purposes, including estate planning, tax planning, asset protection, and charitable giving. The law has become increasingly prevalent because of its flexibility, the power to maintain privacy, and the security it offers to heirs. Below are some key advantages of forming trust.
- Estate Planning: A trust can allocate assets after the grantor's death. It can help avoid probate and reduce estate taxes. The grantor can also decide how the assets in the trust are to be allocated and when.
- Asset Protection: A trust can protect assets from creditors or legal activity. By transferring assets to a trust, the assets are no longer held by the person but by the trust. Thus, if the individual is sued or goes insolvent, the assets held in the trust are protected.
- Tax Planning: A trust can be created to minimize taxes. For example, a grantor can create a charitable trust that will benefit a charity and reduce the amount of taxes owed on the grantor's estate.
- Continuity of Business: A trust can be used to ensure the continuity of a business. For example, a family business can be held in a trust, and the beneficiaries can continue to run the business after the grantor's death.
- Privacy: A trust provides privacy because the assets held in the trust are not part of the public record. The beneficiaries and the assets held in the trust are only known to the trustee.
- Flexibility: A trust can be adaptable because the grantor can determine how the trust will be managed and how the assets will be distributed. The grantor can also change the terms of the trust if circumstances change.
Types of Trusts
There are several types of trusts, each with its own unique features and benefits. Some of the most common types of trusts include:
- Revocable Trusts: As mentioned earlier, revocable trusts are specified during the settlor's lifetime and can be changed or discontinued at any time. The settlor generally acts as the trustee and retains authority over the trust assets but designates one or more successor trustees to handle the assets in case of their inability or death.
- Irrevocable Trusts: Irrevocable trusts cannot be modified or terminated by the settlor once established. These trusts are often used for tax planning and asset protection, as they remove assets from the settlor's estate and provide creditor security.
- Testamentary Trusts: Testamentary trusts are specified through a person's will and become effective upon death. These trusts can be irrevocable or revocable and are usually used to provide for minor children or heirs with special needs.
- Charitable Trusts: Charitable trusts are specified to support charitable institutions and causes. These trusts offer different tax advantages, including income tax deductions and estate tax exemptions.
Key Terms for Trusts
- Settlor: A person who creates the trust and moves assets to the trustee.
- Trustee: A person or entity who holds and oversees the trust's assets for the benefit of the heirs.
- Trust Property: It refers to the assets that are held in the trust.
- Beneficiary: An individual or entity who accepts the benefits of the trust.
- Trust Instrument: The legal paper that creates the trust and sets out the terms and conditions under which it will be handled, including the allocation of assets.
- Fiduciary Duty: The trustee's lawful responsibility is to act in the heirs' best interests and control the trust assets responsibly.
- Discretionary Trust: It is a type of trust in which the trustee has discretion over the distribution of assets to the beneficiaries.
- Prudent Investor Rule: It refers to the legal regulation that mandates the trustee to invest trust assets.
- Testamentary Trust: A trust made in a will and becomes effective upon the settlor's demise.
Final Thoughts on Trusts
Trust law provides an adaptable and safe mechanism for handling and protecting assets. It offers asset protection, tax planning opportunities, estate planning benefits, management of assets for minors and people with disabilities, privacy and confidentiality, and the option for professional management. These advantages make trust law a practical tool for individuals and families looking to plan for their financial future.
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Meet some of our Trust Lawyers
December 1, 2022
Jason is a self-starting, go-getting lawyer who takes a pragmatic approach to helping his clients. He co-founded Fortify Law because he was not satisfied with the traditional approach to providing legal services. He firmly believes that legal costs should be predictable, transparent and value-driven. Jason’s entrepreneurial mindset enables him to better understand his clients’ needs. His first taste of entrepreneurship came from an early age when he helped manage his family’s small free range cattle farm. Every morning, before school, he would deliver hay to a herd of 50 hungry cows. In addition, he was responsible for sweeping "the shop" at his parent's 40-employee HVAC business. Before becoming a lawyer, he clerked at the Lewis & Clark Small Business Legal Clinic where he handled a diverse range of legal issues including establishing new businesses, registering trademarks, and drafting contracts. He also spent time working with the in-house team at adidas® where, among other things, he reviewed and negotiated complex agreements and created training materials for employees. He also previously worked with Meriwether Group, a Portland-based business consulting firm focused on accelerating the growth of disruptive consumer brands and facilitating founder exits. These experiences have enabled Jason to not only understand the unique legal hurdles that can threaten a business, but also help position them for growth. Jason's practice focuses on Business and Intellectual Property Law, including: -Reviewing and negotiating contracts -Resolving internal corporate disputes -Creating employment and HR policies -Registering and protecting intellectual property -Forming new businesses and subsidiaries -Facilitating Business mergers, acquisitions, and exit strategies -Conducting international business transactions In his free time, Jason is an adventure junkie and gear-head. He especially enjoys backpacking, kayaking, and snowboarding. He is also a technology enthusiast, craft beer connoisseur, and avid soccer player.
December 7, 2022
20 years experienced attorney, Corp/commercial RE/wills trusts/ contracts/ reg compliance
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Ben Prell is a “business concern” lawyer. Whether a legal issue or concern could develop into a dispute, or already has, he stands ready to advise, assist, and advocate for his clients. Over more than 20 years of practice, Ben has represented clients in all manner of business disputes. He has handled matters that include business ownership and control disputes, non-competition agreements, contract breaches, employment disputes, securities fraud, misappropriation of trade secrets, and intellectual property infringement. Ben provides advice and counsel to businesses regarding litigation and regulatory risk management, compliance with federal regulations, and contract negotiation, revisions and updates. Ben’s recent work includes the successful resolution of cases involving the defense of C-Level executives who became embroiled in larger disputes with their company’s buyers or creditors and the disputed ownership and control of multiple businesses. He has also served as counsel for court-appointed receivers, brought wrongful termination and compensation claims by executives and minority shareholders and addressed securities fraud claims, a partnership claim related to the development of a cellulosic ethanol plant, and a contract dispute involving information technology services. His efforts on behalf of his clients led to his recognition as one of Kansas and Missouri’s Rising Stars by Super Lawyers®.
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Ari is a transactional attorney with substantial experience serving clients in regulated industries. He has worked extensively with companies in regulated state cannabis markets on developing governance documents (LLC operating agreements, corporate bylaws, etc...), as well as drafting and negotiating all manner of business and real estate contracts.
December 3, 2022
I am the Founding Member of Evan Ficaj Law Firm PLLC, and I am passionate about helping businesses launch, grow, and succeed. My law firm assists clients with business, contract, entertainment, IP, and estate planning matters.
December 5, 2022
We are business and immigration attorneys, committed to delivering compassion-driven and innovative legal solutions that better our clients' lives. Founded in 2019, Carbone Law provides legal services tailored to the unique needs of our clients. We pride ourselves in building a personable attorney-client relationship and are dedicated to establishing a complete understanding of our client’s legal issues, so that we can develop an effective plan for achieving their desired results. Michael T. Carbone, Esq. started Carbone Law with the goal of delivering exceptional legal services to his community. At Carbone Law, Michael counsels individuals and small businesses on a variety of legal issues. Whether aiding families in building successful applications for immigration benefits or advising freelancers and business owners on contract, governance and related issues and the complexities of complying with federal, state and local laws, Michael is committed to building a lasting relationship with his clients.
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New York Business law attorney with corporate, securities and contracts experience.