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Trusts are a great way of keeping the government's hands out of your savings. By means of a trust, many are able to pay a significantly lower tax rate on their yearly earnings. You work hard for what you have. You don’t want to see your money squandered away due to astronomically high tax rates or poor fund management. Forming a trust is a great way to insure your savings are kept safe for your children and grandchildren to come.
So, what’s so great about a trust? One of the biggest incentives for a trust is the assurance that your family members will be taken care of. Through a trust you can stipulate which family members receive which assets to a fairly specific degree. For example, you can designate certain funds to be used only over certain periods of time if the intended recipient isn’t great at saving. You can also designate the money only be spent on necessities, like food, rent, or healthcare. This will should you to rest easing, knowing that your family will be cared for. Another way to use a trust is through that of a college trust fund. This is a reserve set up specifically to pay for planned educational expenses. Colleges are becoming more expensive with each passing year, so you’re going to want to prepare early if you are to save up the required amount of money.
It is also worth noting that trusts aren’t handled in probate court (like wills are). This makes for a much faster process. Probate court requires a great deal of time and paperwork. I’m sure your family would be appreciative of this consideration. By avoiding probate court, your family would likely receive their inheritance a year earlier. It is also advantageous to avoid probate court as you then avoid the fees associated with this court process.
If you have intentions to give to charity, a charitable trust might prove beneficial for you and your family. Say, for example, you have an area of land you would eventually like to see donated. If you establish a charitable trust, you can insure the land will go be given to the desired recipient. Once you have established this trust, you can continue to use the land while also receiving a reduction in your taxes.
This leads into another advantage of a trust: avoiding estate taxes. If you wish to pass your properties to a family member by means of a trust (as opposed to through the use of a will), a great deal of taxes can be avoided. You don’t want to see your child’s inheritance given to the government. Set up a trust beforehand, and your heirs could likely receive the inheritance tax free.
Another way in which a trust can be beneficial is though the dispersal process. In 2013, due to the increased trust max tax rate, the highest earners in the country took a bit of a hit. It is now advisable to allocate portions of your trust to beneficiaries in lower tax brackets. Through this action, the portions distributed are taxed at a lower rate.
There are a multitude of reasons to encourage the use of a trust. For one, who wouldn’t want the smallest possible tax rate placed on their earnings? Trusts are an excellent tool for this reason. Whether you wish to grow your savings each year or you’re passing an inheritance on to a relative, trusts are undoubtedly a useful instrument.
If you’d like to discuss your options regarding the formation of a trust, please consult an attorney. At the Reid Law Firm, we are extremely verse in the Alabama trust formation and regulation process. Trustees should have their trusts assessed annually. As rates go up and down and new policies are put in place, it is wise to keep a constant eye on how your savings are doing. You want to insure your money is continually handled in the most advantageous fashion. If you'd like to discuss your financial options, please contact the Reid Law Firm today at 205-913-7406! You can also text us at (205) 913-7406 for a quick answer to any legal question. Chris Reid can be reached by email at chris.reid@reidlawalabama.com. All communication to the Reid Law Firm is protected by attorney client privilege, so any information submitted will be held in confidence. Initial consultations are always free. For a complete list of our practice areas please visit www.reidlawalabama.com.
Our firm practices the following areas of law: wills, trust, and estates, divorce and family, DUI and drug offenses (only first and second time offenses), and car accident cases. We also handle business law, including formation of business entities and drafting contracts. Additionally, I co-host Yellowhammer News every Monday during lunch from 11-12 on 101.1 fm Birmingham (but our show is broadcast throughout most of the state).