By William Phillips, AXA Advisors

Abstract: There may be many reasons for an individual to establish a trust.

While most people think trusts are only for the wealthy, trusts are commonly used to distribute property after death or to protect one’s assets in the event of physical or mental disability. A trust is simply the legal relationship created when an owner of property (the grantor) transfers property to another person (the trustee) to hold for the benefit of a third party (the beneficiary).

Among the uses for a trust, is providing continuity in the management of a business or other property. Or a trust can name a guardian for minor children. A trustee can help manage assets and protect assets for beneficiaries who are unable to prudently handle their personal financial affairs.

The grantor usually has a specific goal in setting up the trust, such as to provide the beneficiary with continuing financial assistance or passing ownership or control of a specific property. This is generally the case where minors, or others deemed legally incompetent, are the intended recipients.

A living trust is a trust created when the grantor is alive as opposed to a testamentary trust created by a will, which takes effect at death. Under a living trust, a trustee may be empowered to handle business details and arrange financial matters for a living person who is unable to handle his or her own affairs.

For a large estate, avoiding the publicity of probate may be another consideration in setting up a trust. During probate of a will, all actions of the executor under court supervision become a matter of public record, open to anyone wishing to look up the proceedings. While the administrator of a trust has many of the same tasks as an executor, the transactions themselves remain private.

Many people set up a trust so that they can donate to charity on a tax-advantaged basis. A Charitable Remainder Trust, for example, enables a grantor to give appreciated property to a charitable organization without paying capital gains taxes on the appreciation.

The potential estate and gift tax savings made possible by the use of certain types of trusts may be another factor in setting up a trust. Even with the many changes in estate tax laws over the past few years, trusts can frequently be useful in minimizing the size of the grantor’s future estate, thereby reducing estate taxes due. A particularly attractive example of such a trust is an irrevocable trust funded by life insurance.

Trusts can serve many useful purposes. The law of trusts and estates is a complex area, however, and it is constantly changing. Before a trust is established, many legal and tax issues must be fully considered. You should consult with your legal and tax professionals to help ensure that the trust established provides the benefits intended by the grantor.

AXA Advisors, LLC does not provide legal or tax advice. Please consult your tax or legal advisor regarding your individual situation.

This article is provided by William Phillips.  William Phillips offers securities and investment advisory services through AXA Advisors, LLC (member FINRA, SIPC) 3141 Fairview Park Drive Falls Church VA 22042 and offers annuity and insurance products through an insurance brokerage affiliate, AXA Network, LLC and its subsidiaries.