Trust Fundamentals
by: Joseph Judah, Mutual of Omaha

What do you think of when you hear the word "trust"? The Rockefellers? The DuPonts? The Gettyês? The Gates? No doubt about it, in the minds of many people, trusts are associated exclusively with the very wealthy. Or, at least, trusts were so associated.

Times are changing. Over the past few decades, incomes have soared. And sizable estates have become commonplace. With these burgeoning incomes and estates has come a much more widespread interest in the role of trusts in financial planning.

Understanding, however, has not always kept pace with need. While trusts offer distinct advantages to a broader group of individuals than ever before, considerable confusion still exists concerning trusts and their uses. It behooves us, therefore, to take a closer look at trusts in general -- what they are, how they work, and what they can do for you.

What Is a Trust?

Basically, a trust is a legal relationship by which you, as grantor (or creator of the trust), transfer property to a trustee (usually the trust department of a bank) for the benefit of one or more beneficiaries. The trust document, drafted by your attorney, sets forth your desires as to the duration of the trust, the powers and duties to be given the trustee, the time and manner of the distribution of the trust income and principal, and the rights of the beneficiaries. And, while the trustee is given legal ownership of the trust property, the trustee is legally bound to manage, invest, and disburse that property in the manner you describe in the trust document.

Types of Trusts

Put simply, there is no such thing as a standard trust. Instead, every trust is tailor-made to fit the financial needs and goals of the grantor. Trusts thus come in several varieties. For instance, a trust may be testamentary (created by the grantor under his or her will) or living (created by agreement during the grantor's lifetime). Furthermore, a living trust may be either a revocable trust (a trust which can be altered, amended, or even terminated -- with all trust property returned to the grantor -- at any time) or an irrevocable trust (a trust that cannot be changed).

In addition, a trust may be created for any number of beneficiaries (including the grantor himself) and may provide for just about any method of trust property distribution that the grantor desires. (Many grantors typically choose to provide that trust income be paid to one beneficiary for his or her life, with the remaining trust property to be paid to another beneficiary or beneficiaries when the income beneficiary dies.)

What a Trust Can Do for You

• A trust may be established for any number of uses. Among the more significant:
• A trust may be created as a "pourover" vehicle for your estate assets, designed to hold and manage your property for the benefit of your heirs after your death.
• A trust may be created as a receptacle for the life insurance proceeds to be collected upon your death.
• A trust may be created for the professional management of your investments, such as stocks and bonds, real estate, etc., during your lifetime.
• A trust may be created as a means of providing for your child's education or for the care of a handicapped dependent.
• A trust may be created for use in conjunction with your retirement planning.
• A trust may be created as protection against the mismanagement or nonmanagement of your assets in the event you become temporarily or permanently unable to manage them yourself.
• A trust may be created as a tax-savings device.

Who to Name as Your Trustee
Trusts, then, can serve a variety of purposes. But a variety of trustees may not serve your purpose. Even the best trust may fall short of its mark in the absence of a competent, fully qualified trustee. Look for a financial advisor that possesses all of the qualities essential to the proper administration of a trust: years of experience in the ins and outs of trust administration, tremendous know-how and vast resources in the area of investing, extensive knowledge of tax and accounting principles -- and much more.

In sum, a trust is an extremely flexible financing-planning tool, and, as such, can be set up to meet your individual objectives, whatever they may be.

Information provided is based on current federal estate tax law. Contact your insurance agent as well as your legal and tax counsel for tax and estate planning advice.