Q: Will a Trust avoid income taxes?
A: No. In most cases a trust will operate under the creator's personal social security number so any income earned by a trust investment will be reported on that individual's form 1040. Taxes paid in the same manner and at the same rate that taxes would be paid had the trust never been created.
Q: I have a modest sized estate. Does it make sense for me to create an estate plan?
A: Every estate is different and the owners of those estates can have different goals. However, the goals or the reasons why people choose to create a trust are common goals for most families no matter what the size of their estate. So the safest answer is, you should assume owning a trust will benefit you greatly until there is solid evidence that a trust will not benefit your family. No matter what the size of the estate, most families believe their assets are precious to the individual. Most want to keep their assets as long as they live and then pass them to loved ones without cost or interference. Some form of trust will give you the best chance of making that happen.
Q: How are Trust assets invested?
A: In most cases money is invested in the same manner it was invested prior to the existence of the trust. The trustee will manage investments and oversee the process. Trust assets are held in bank accounts, brokerage accounts, in annuities through insurance companies, etc. The intent of holding these assets in the trust rather than in the name of the individual is simply to avoid probate and many of the other negative issues that the trust creator wishes to avoid. One of the greater benefits of placing investments into the correct form of trust is to shelter them from being lost to nursing homes in the event long-term care is needed later in life.
Q: How does one choose a Trustee?
A: A trustee is the person who will manage and care for trust assets. When a family trust is created, it is almost always the case that the trust's creator will appoint himself/herself to be the trustee of their trust. In the case of a husband and wife creating a trust together, they will both appoint themselves to be co-trustees. The creator will also appoint successor trustees so when the initial trustees either become incapacitated or die, there is someone who is already appointed to step up and take over the operations of trust assets. This individual must be able to follow your wishes, treat your beneficiaries fairly, be organized and understand money and investments. Of course you should trust the individual(s) completely.