Financial News & TipsAlan S. Moore / L’Observateur / November 25, 1998Trusts are among the least understood of modern financial tools, yet they are also among the most useful. Not just a tool for the wealthy, a trustcan fit into just about anybody’s financial plan.
Most people know trusts as a way to transfer assets from one generation to another – the indolent movie playboy living on a trust fund is a notable example. But trusts are hard-working instruments that can perform suchpractical jobs as protecting assets from creditors, managing property for young children or caring for a disabled relative. Trusts can also be used tominimize estate taxes and direct the future uses of family assets.
The trust concept was originated six hundred years ago in England, and is now part of the legal code of the United States and many other countries.
A trust is a legal entity-similar to a corporation-which takes ownership of assets in accordance with the wishes of the person establishing it.
Property, for example, can be put into certain trusts during one person’s life, and then potentially pass to another person unencumbered by probate or estate taxes.
A trust should be considered when an estate will be valued at more than $625,000 – the level when high federal estate taxes beginning at 37 percent kick in (the $625,000 exempted amount corresponds to the 1998 exemption from estate taxes, which will gradually rise to $1 million by the year 2006). Those who have, or expect to have, real estate, savings,investments, life insurance and other valuables in excess of that level can use a trust to protect those assets from estate taxes.
Almost anyone is a candidate to consider establishing a trust. Most peoplecan identify with at least one of these popular reasons for establishing a trust: Providing financial protection for a spouse, child or other beneficiary.
Designating a professional administrator to manage your affairs should you become disabled.
Ensuring that your minor children are cared for in the event you or your spouse dies or becomes unable to care for them.
Caring for elderly parents or disabled loved ones.
Establishing a tax-efficient savings vehicle to fund the education of children or grandchildren.
Protecting as much of the assets as possible from federal estate and income taxes.
Making charitable gifts.
Avoiding probate, which can be a slow and expensive process. (Probate isalso a matter of public record, and the terms of a will and other components of an estate may be subject to public disclosure.)One way to establish a trust is to consult with a financial advisor who understands your portfolio of assets, your needs for income and use of the assets during your lifetime, and your intentions for future transfer of those assets. Then, with the assistance of tax and legal counsel, you canchoose a trustee such as a trust company to administer the trust(s) and manage the assets according to your direction.
(Alan S. Moore is a financial advisor of Legg Mason Wood Walker, Inc., adiversified investment brokerage and financial services firm in New Orleans.)
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