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Passing assets through a trust: What to know

Financial Focus

As the year winds down, your thoughts might drift to the future. And, as part of that future, you may be thinking of where your financial assets will end up. You've worked hard to accumulate them, and you'll certainly need some of them to support your retirement, but what about the rest? What's the best way to pass them on to your loved ones?

There's no single path for everyone to follow. But you might consider establishing a trust, which offers some key benefits. For example, your estate can avoid the time-consuming, and highly public, process of probate. Plus, you can be highly specific about how your assets will be distributed.

To establish a trust, you will need to work with a qualified estate-planning attorney. And while you'll discuss many issues, here are three key questions that will certainly need to be addressed:

Who will serve as trustee of the trust? As the grantor, or creator, of your trust, you will pick the trustee – the individual or corporate entity that will manage the trust's assets and carry out the purpose of the trust. You could choose a trusted loved one, but this individual might not have the knowledge or experience to manage the responsibilities of a trustee. As an alternative, you could choose a corporate fiduciary, such as a bank or trust company. These entities are typically regulated by outside agencies and provide significant public matter expertise. Of course, they charge for their services and often have account minimums.

When are distributions made? As the grantor, you can choose when assets will be distributed to the beneficiaries you've named. You could decide to keep the assets in the trust until a beneficiary reaches the age of majority; note that the age of majority is not the same in all states. Or you could choose to "phase in" the distributions at particular ages – e.g., 30, 35, 40 – or after a certain number of years. You could even hold assets in the trust for the lifetimes of the beneficiaries. These types of choices will depend on several factors, such as your feelings for how responsible a beneficiary might be in managing money.

For what purposes can the trust assets be used? In addition to choosing when your trust should make distributions, you can decide how these assets should be used. You could designate some broad categories, such as health, education, maintenance and support. A beneficiary's request for distributions in these areas is usually granted. But you could also structure the trust to provide mandatory income, perhaps once a year, or include a provision that provides incentives, such as distributing certain amounts of money once the beneficiary has achieved a milestone, such as finishing a degree or purchasing a first home.

One final note: Although you clearly have great control over what your trust can accomplish, its effectiveness will also depend, to a great extent, on its asset level. With this in mind, you'll want to pay close attention to your investment decisions throughout your life and your withdrawal strategy during retirement. The better your choices in these areas, the more options you'll have with your trust – and the greater the potential benefits for your beneficiaries.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.

Edward Jones, Member SIPC.