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FAQs About Trusts

01/09/2024 - Financial Wellness & Life Planning, Investing for Life, Building a Portfolio, Planning for Retirement

Multigenerational family playing with a dollhouse

What do you think of when you hear the words “trust fund”? Many people will associate those words with the Astors, the Rockefellers or the financial titans of the 19th century. Those families did indeed employ trusts for the long-term care of family wealth. But you don’t need to have billions to benefit from a trust-based wealth management plan, thanks in part to advances in technology. More and more affluent families these days are exploring the unique financial management and financial protection advantages of trusts. Here are questions that we hear frequently, and our answers.

What is a trust?

A trust is a formal, legal arrangement for the continuing care and management of property. Typically a trust is created when someone transfers money or property to a trustee, either an individual or a trust institution or bank trust department. The trustee holds title to the trust assets and manages the trust fund solely for the benefit of one or more beneficiaries.

Can the person who creates a trust also be the beneficiary of the trust?

Yes, that is very a common approach. In a typical revocable living trust, a husband and wife might transfer their investment assets to the trustee with the expectation that the trustee will handle their investments for the rest of their lives. The trustee may remit trust income to the couple as needed, or may be authorized to pay their bills directly from the trust.

Can I be my own trustee?

Yes, you can be the trustee of your trust, or you can have a trusted family member be the trustee. But that’s not a course we would recommend. Some very important reasons to let us be trustee of your trust are:

  • To gain access to professional management of your assets.
  • To have someone available to stand in your financial shoes should illness or incapacity strike.
  • To provide financial support for your loved ones during your lifetime and beyond.
  • To put all the chores of trust administration into experienced hands.

What’s the best age for setting up a trust?

As a practical matter, a great many people first give serious consideration to establishing a trust as they approach retirement, or when they do their estate planning. However, many young entrepreneurs have used trusts for their wealth management once they achieve early success. There really is no “best age.”

How is a trust different from other investment accounts?

A trust has an independent legal existence that makes it durable. It can survive the incapacity or death of its creator. The trustee continues to manage the trust according to its stated purposes, stepping into the shoes of the person who created the trust.

If a trust has an independent legal existence, does that mean it must pay income taxes?

In the more usual case, trust income is distributed to the beneficiaries and they pay the taxes. However, if the trust accumulates its income, yes, the trust does pay income taxes, and the tax brackets for trusts are very compressed.

Can I change my mind after I create a trust?

That depends upon what sort of trust we’re talking about. A charitable trust is normally irrevocable and can’t be modified. A trust in a will can be changed simply by amending the will.

Usually, this question arises about revocable living trusts, and in that case the answer is yes; you remain in full command. You can change the beneficiaries, add assets, withdraw the assets, even terminate the trust should you decide that it is not right for you and your family.


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