Trusts: Redirecting Income to Meet Your Financial Objectives

There are many different types of trusts that serve different purposes and have different benefits. Some change the timing of when income is taxable, which can have tax benefits. Others shift income to another tax payer, which likewise can lighten a tax burden on some income. Some trusts are living trusts that become active while its creator is still alive, while yet others are not actually created until after the death of its creator (a testamentary trust). Some trusts are very broad and general in their scope, while others serve very specific purposes. An example of a specific kind of trust is an NFA trust, which is utilized by individuals who want to own certain kinds of weapons but do not want to have to get governmental permission to do so.

Among the many kinds of trusts, there are some concepts that apply generally. First are the general actors in a trust. There is the trustor (who could also be known as the creator or originator of the trust), the trustee (who is given a legal interest in the trust to have management powers over its assets), and there is also the beneficiary who has an equitable interest in the trust’s assets and therefore has an actual ownership interest in those assets. The relationships between the actors described above implicate another general trust concept. Trust law involves the transfer of property rights away from the trustor for either its own benefit (tax benefits), or the benefit of a third party. The concept of a trust applies in a variety of legal settings outside of estate planning (such as in bankruptcy), but is a constant in the area of decedent’s estates since the administration of a decedent’s estate is done by a “trustee” to that estate.



Photo by: David Reber’s Hammer Photography