For many, the idea of creating a trust fund seems unnecessary. Unfortunately, there is a common misconception that only the ultra-wealthy can benefit from establishing trust funds. However, this is far from the truth, as many people can reap the benefits of establishing a trust fund. As such, understanding the different options is critical to picking the best option for you and your needs. One thing you should consider is creating a grantor trust with the assistance of PA trust attorneys. The following blog explores this option in further detail.
How does a grantor trust work?
When you create a trust fund, you are known as the grantor, because you are the person responsible for establishing it. Generally, once you’ve created it, you will then appoint someone to oversee the trust fund and manage it on your behalf. This person, known as the trustee, is responsible for making investments and dispersing assets based on the terms and conditions on which you created the fund.
However, in some instances, you can appoint yourself to oversee and manage the fund. Essentially, a grantor trust is any trust in which you, as the creator, are the owner of the assets for tax purposes. As such, you must ensure you pay income taxes on any funds generated by the assets held in the trust. The most common kind of grantor trust is a revocable living trust.
It is important to understand, however, that as the grantor of the trust, it’s in your best interest to appoint a successor trustee. This is because when you pass away, your trust is no longer considered a grantor trust, and someone must assume responsibility for distributing the remaining assets. If you do not name someone, the court will appoint someone for you.
What are the benefits of this option?
If you are considering this option, understanding the benefits is critical to determining whether or not this is right for you. Generally, one of the main reasons people establish trust funds of any kind, including grantor trusts, is because they want to avoid probate. This is a long and complicated process in which the courts will oversee the distribution of assets from your estate upon your passing. However, as a trust fund is not technically part of your estate, the assets held in it do not undergo this process.
Another benefit of a grantor trust is that you have increased control over the assets held inside of it. As the terms of the trust are revocable, you can adjust the assets held in the trust and add or remove beneficiaries as your circumstances change.
If you’re ready to create a grantor trust, it’s important to understand that enlisting the assistance of an experienced attorney is in your best interest for this process. Unfortunately, trying to create a trust on your own can lead to issues that invalidate the trust, leaving your assets and beneficiaries vulnerable. As such, connecting with the team at Friedman Schuman Layser is in your best interest. We understand how complicated these matters can be, which is why we are dedicated to helping you achieve the best possible outcome for your circumstances.
