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Edsel and Naomi Lindquist   
Westminster, CO  
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Trusts 101

There is a popular misconception that only very wealthy people should think about trusts. This is not the case at all! While it’s true that many wealthy people do utilize trusts as part of their financial and legacy planning, the trust can also be a valuable tool for persons of more modest means.

What exactly is a trust? A trust is a legal relationship established when a grantor transfers property to a trustee who must then manage those assets solely for the benefit of the current income beneficiary(ies) and eventual remainder beneficiary(ies). A trust may be revocable or irrevocable. Irrevocable charitable trusts may provide current or future payouts and may provide certain types of tax benefits. As a financial management tool, however, the revocable living trust is the most common type.

Trusts have some special terms associated with them; understanding them can be very helpful.

Grantor—the person who sets up the trust. The grantor gives instructions in the trust document on how to manage and distribute the assets of the trust both during life and after death.

Trustee—the person or institution who carries out the provisions of the trust.

Income beneficiary—those who receive income from the trust. In most cases, final distribution of the trust is not made until after the death of the last surviving income beneficiary.

Remainder beneficiary—those persons or institutions named to receive a portion of the trust residue at the time of distribution. These may include family members and other individuals as well as charities.

Revocable—a trust that may be cancelled (revoked) or changed (amended) as the grantor desires. This type of trust has no income tax advantages in terms of a charitable contribution deduction.

Irrevocable—a trust that may not be amended or revoked. There are significant restrictions on irrevocable trusts for both income and remainder beneficiaries; however irrevocable charitable trusts usually generate a charitable contribution deduction for the grantor. Certain types of irrevocable charitable trusts may also have a favorable impact when it comes to capital gains tax on the funding assets.

Covenant Trust Company® can help with both revocable and irrevocable charitable trusts.  Contact your local Financial Services Representative for more information.  [view Directory]

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