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What is a Trust? | A Guide to Types of Trusts and their Purposes

A trust is a legal arrangement which can help you to control your assets and possessions.  Often, trusts can help to reduce taxes on your estate and speed up the process of allowing beneficiaries access to those assets. It is important to understand the different types of trusts available.

What is a Trust and How Does It Work:

  1. What is a Trust?
  2. What is a Living Trust?
  3. What is a Revocable Trust?
  4. What is an Irrevocable Trust?
  5. How to Open a Bank Account for a Trust

What is a Trust?

A trust is a legal arrangement which enables you to give a trustee control of your assets on behalf of a single beneficiary or multiple beneficiaries. As the grantor, you specify how the trust is managed and what you want to happen to your finances, possessions or investments. You can opt for a revocable trust, which means that you can adapt the rules whenever you want, or an irrevocable trust, which offers no flexibility. When you set up a trust, you must appoint a trustee to manage the arrangement. You can appoint yourself as the trustee or choose a different person. Once you’ve established your trust, it is possible to make donations, and the trustee assumes responsibility for determining what happens to the original sum of money (known as the principal or corpus), the interest generated by the trust and any gains made on the principal (known as capital gains). You may have a single beneficiary or several people or organizations who stand to benefit from the trust. It is also possible to have more than one trust. Often, people choose to have various types of trust, as they function in different ways.

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What is a Living Trust?

A living trust is a legal arrangement, which is drawn up during your lifetime. This document is similar to a will, but there are significant differences. With a trust, you specify exactly what you want to happen to your estate while you are still alive, and when you die, the trustee is able to carry out your instructions without waiting to complete the long-winded process of probate. A will comes into play only when the estate holder dies, and the executor can only start to make arrangements when probate is complete. With a living trust, the process is shorter and the assets will be transferred to your chosen beneficiaries when you die. There are different types of living trust, including revocable and irrevocable trusts. Living trusts are often beneficial for people who have complex financial affairs and those with multiple beneficiaries.

What is a Revocable Trust?

If you set up a revocable trust, you have the option to make changes during your lifetime. As the grantor, you can modify the rules or even cancel the trust whenever you want to. During your lifetime, your trust may generate interest, and this money will go to you, the grantor. When you die, your assets will be passed to your beneficiaries, but you can benefit from your trust while you’re alive. Revocable trusts offer flexibility, and they also provide the grantor with the ability to benefit from the trust at the same time as enjoying peace of mind that arrangements are in place for the trust to be transferred to beneficiaries after death. When the grantor dies, the trust becomes irrevocable.

What is an Irrevocable Trust?

An irrevocable trust cannot be modified or adjusted by the grantor without the permission of the beneficiaries. When you set up an irrevocable trust, you essentially lose control of ownership of the assets, and you transfer the trust to your beneficiaries. An irrevocable trust is the opposite to a revocable trust, which can be adjusted by the grantor at any time without any input from the beneficiaries. The most common reason people establish an irrevocable trust is to minimize estate taxes. As ownership passes to the beneficiaries, the assets protected by the trust are no longer taxable as part of the individual’s estate. Examples of assets that may be included in an irrevocable trust include insurance policies, cash, and business investments.

How to Open a Bank Account for a Trust

There are many advantages of opening a bank account for a trust. Setting up a trust can help to protect your money and ensure that your loved ones benefit when you pass away. To open a bank account for a trust, you’ll need to provide legal documents and identification, which prove that you are the legal trustee. You’ll be required to present your Trust Tax ID Number and some other paperwork that confirms that you are the trustee and you have the legal right to open and manage the account. After you’ve proven your identity, you’ll need to complete some forms to open the account and then make an initial deposit. This process applies to a living trustee.

If you’re opening a bank account after the grantor has died, the process is different, and you’ll need a new Trust Tax ID Number. If you are the trustee, you can apply for a Trust Tax ID Number using a 1-Hour Trust Tax ID obtainment service. The Tax ID will replace the social security number of the deceased grantor, and it will be used on every document related to the trust. When a grantor dies, a revocable trust becomes an irrevocable trust. When you have the Trust's Tax ID, you can open a new account for the trust, and any funds from old trust accounts can be transferred. If the grantor is living, they are not required to complete a separate tax return for the trust. If the grantor has died, the trustee assumes responsibility for submitting a tax return for the trust.

There are numerous advantages to setting up a trust. Trusts give you control over your assets, and they can also help to reduce estate taxes and ensure your beneficiaries profit from the trust as soon as you die. There are different types of trusts available and you can explore options to see which kind of trust suits you and your beneficiaries best. If you’re opening a bank account and you’re a trustee, and the grantor has passed, you’ll need to obtain a Tax ID Number for your trust, but don’t worry. This process is very quick and straightforward. Apply for your Trust Tax ID Number online today.

 


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