Why Set Up a Trust Before Retirement

(FinancialHealth.net) – When is a good time to set up a trust? After retirement might seem like the obvious answer, but there are plenty of reasons to set one up earlier than that. Trusts aren’t just about the distribution of assets at the time of the grantor’s, or owner’s, death. The truth is, a trust can also be used for smart management of assets during the grantor’s lifetime.

With a trust in place before retirement, it’s possible to protect and manage your assets and reduce taxes. Learn more about setting up a trust and how it might just be able to help you.

Protect Your Assets

Trusts aren’t reserved for the wealthy, they’re appropriate for anyone who has assets that need protection. In the case of divorce, garnishments and civil lawsuits, assets can be compromised. The right trust can be used to protect assets from lawsuits, creditors and bankruptcy.

An asset protection trust is an irrevocable trust that keeps a portion of an individual’s assets out of reach. These trusts aren’t available in every state but can be utilized by moving assets into a trust located in qualifying states.

With an asset protection trust in place, scheduled distributions to the grantor can be set up, however, distributions are only made at the discretion of the trustee.

Reduce Taxes

There are specific types of trusts that can reduce the size of an estate, ultimately reducing taxes paid on that estate. While the details vary, there are a number of trusts that can be used to accomplish the same thing — reducing taxes by removing assets from the estate and placing them in the trust.

A bypass trust, for instance, allows for an individual to set up a trust that benefits their spouse. Even though the spouse has access to the trust during the grantor’s lifetime, the assets in the trust are removed from the estate.

Other trusts that can reduce taxes include a “qualified personal residence” trust, an “irrevocable life insurance” trust and an “intentionally defective grantor” trust.

Manage Your Assets

Trusts are useful tools for managing assets. They detail the grantor’s wishes for the distribution of assets in the trust. For example, a trust can be used to indicate who receives specific assets, when those assets will be passed on to the heir and even how assets can be used.

With a trust in place, the grantor doesn’t need to worry about the distribution of their assets being slowed down by probate court at the time of their death.

Creating a trust before retirement is a wise way to protect yourself, reduce taxes, and manage your assets. Pre-retirement planning and setup can mean that the transition into retirement is more stable and therefore more enjoyable.

Speak with a financial planner who can offer guidance and assistance as you make decisions about the future of your estate.

~Here’s to Your Financial Health!

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