What Kind of Trust Should I Set Up to Accomplish My Goals?
If you are looking for the best place to park your assets, the good news is there are many types of trusts to choose from and one is probably a perfect fit for your needs. The tough part for individuals is figuring out which type of trust best serves the purposes they want to accomplish. In this series, we will discuss a few lesser-known trusts and how they work to meet specific needs.
Blind trusts work for elected officials and CEOs
A blind trust is one where you turn over a specific amount of assets to an independent trustee. You may name yourself, others or a combination thereof as the beneficiaries of your blind trust. The trustee has full discretion over the trust assets, with few limitations. You have no input as to where the funds are invested, as long as the trustee stays within certain boundaries. Nonetheless, the trust is reasonably secure because the trustee still owes standard fiduciary duties to the beneficiaries.
The beauty of this type of trust is that it helps insulate you from claims that you used your office for personal gain. The theory is if you don't know where your trust funds are invested, your personal finances won't affect decisions you make in your official position. For these reasons, blind trusts are frequently used by elected officials and by officers of publicly traded companies.
Rabbi trusts defer income for the future
If your accumulation of assets has reached a point where you can live comfortably without working, but you still generate a significant income in your current profession, a rabbi trust, named after the first trust of its kind upheld in court, can let you defer income for the future. The significant benefit is the trust lets you to save big on income taxes today by deferring income until you are in a lower tax bracket.
A rabbi trust is similar to a 401(k) or pension plan, in that it allows you to defer compensation until you retire. When you retire, you can receive distributions from the trust and pay income taxes on the deferred income according to your then-prevailing, presumably lower tax bracket.
In our next article, we will explore additional types of trusts designed to meet specific needs.
Seek legal to find the right trust vehicle for your situation
When it comes to planning for special circumstances, an experienced estate planning attorney is an invaluable asset. At Peterson Law Group, we look forward to helping secure your future. Schedule a consultation today by calling 979-703-7014 or visit us online to request a meeting.