In well-functioning relationships, we trust that our parents and romantic partners will show us love, that business partners will do their part of the bargain and that people in positions of authority (like doctors and taxi drivers) will follow rules and not take advantage of us. Similarly, when we put our assets into trusts, we expect that these assets will be managed and distributed in accordance with our wishes. In sociology, this is referred to as “trust” or “trustworthiness.”

A trust provides an effective tool for managing property for beneficiaries after your death. It can also be a good tool to use during your lifetime to manage certain financial or tax situations, such as to avoid the expensive and time-consuming probate process. Depending on the type of trust you choose, it can even reduce state and federal estate taxes.

Trusts can be used to hold personal and/or business assets, such as real estate, life insurance policies, stocks and bonds. You can also place a family company in a trust and transfer ownership of that interest to future generations, providing many estate planning and tax advantages.

A properly drafted trust allows the trustee to manage and distribute trust assets without going through the costly probate process, reducing costs for your loved ones and saving them a lot of headaches. However, creating and implementing a trust requires careful thought and detailed record-keeping. In addition, naming the right trustee is key. Your trustee should be someone you trust to objectively carry out your intentions and communicate clearly with beneficiaries. While you can name friends or family members, a corporate trustee can provide professional, unbiased management and bring experience and expertise to the role.

It is important to plan for the “what ifs” during your lifetime, such as becoming incapacitated and needing a successor trustee to handle your affairs, make health care decisions and pay bills. A revocable trust allows you to change the terms of your trust to accommodate these types of situations as they arise.

You can also set a trust to terminate at a particular point in time, such as when a beneficiary is old enough to manage their own finances, or in the event of a marriage, divorce or other life-changing events. This can help you ensure that your assets are only used as you intended and can be protected from creditors or the heirs’ poor spending habits.

If you are interested in a trust as part of your comprehensive estate plan, schedule an appointment with a CFP(R) Professional at Facet Wealth today! This article is provided for general informational purposes only. Investing involves risk including the potential loss of principal. There is no guarantee that any investment will be successful. Investing in securities is not appropriate for everyone and should be done only with the advice of a qualified professional. The information contained herein is based on sources that are believed to be reliable, but we do not represent that it is accurate or complete.