Guarding Your Estate With A Personal Trust

Guide to Guarding Your Estate with a Personal Trust

When was the last time you updated your estate plan? Whether you’re nearing retirement or just starting out in your career, it’s always a good time to get your financial affairs in order. In this comprehensive guide, we’ll break down everything you need to know about personal trusts, an important part of many estate plans. Learn how to protect your assets and save your beneficiaries from undue stress.

What is a personal trust?

A personal trust is a legal entity created by an individual in which that individual and/or their family members are also named as beneficiaries. The purpose of a personal trust is to manage property and/or other assets for the benefit of the trustor/beneficiary. Personal trusts also offer enhanced privacy and quick distribution of assets to beneficiaries.

Are Trusts and Estate Planning the Same as Wills?

In addition to a will, a personal trust can provide more certainty about how your wishes will be carried out.

Estate planning is the process of organizing your assets and family matters in advance and making a plan for what you want to happen after your death. Both trusts and wills can be one piece of the estate planning process.

Both trusts and wills are legal documents. A will states your wishes for the distribution of property and assets, as well as who will care for any minor children you may have. Everyone should have a will, regardless of the size of your estate.

In addition to a will, a personal trust can provide more certainty about how your wishes will be carried out. The other main difference between the two is the probate process.

Probate is a legal process for administering an individual’s estate after death. Even though you created a will, the court still needs to prove that your will is legally valid. However, dying without a will is even harder on your heirs, as state law will determine how your assets and property are distributed. You can learn more about Vermont’s intestate succession statute here and New Hampshire’s here.

To make the process as easy and fast as possible on your already-grieving loved ones,

utilizing a personal trust can allow you to avoid spending months working through the probate process.

A personal trust will carry out your wishes right away, without undue burden on your heirs. Trusts can also be used to reduce your estate tax burden.

Finally, it’s important to also name or update beneficiaries for your financial accounts such as investment, savings, and retirement accounts as well as life insurance policies. Transfer of these assets is dictated by whomever is named as your beneficiary.

5 Types of Personal Trusts to Know About

Creating a personal trust is a complex and important process. Trust Union Bank to help you make the best decisions for the benefit of your estate, your own interests, and your beneficiaries.

Learn about the different types of personal trusts and their benefits that we offer at Union Bank:

  • Living Trust: Lets you control and access your assets during your lifetime, then have them distributed after your death according to your wishes and without going through the probate process.
  • Marital Trust: Useful for couples with children from previous marriage(s) who want to pass assets to their surviving spouse while also providing for their individual children as well as any children they have together.
  • Testamentary Trust: Also known as a “will trust” because it’s written in conjunction with your last will and testament. A good option for providing for a minor child beneficiary and/or a disabled beneficiary. Can also reduce estate taxes.
  • Charitable Trust: If you want to pass on money or property to your favorite charity, this type of trust can be set up to benefit a charity as well as individual beneficiaries if you wish. It can also provide you with income during a period of your life if desired.
  • Supplemental-needs Trust: Specifically designed to provide for a relative or child with special needs who will need care throughout their lifetime. Gives you peace of mind that your loved one will be cared for after you’re gone.

What is a Revocable Trust Versus an Irrevocable Trust?

Sometimes you can choose if you want a revocable or irrevocable trust. Union Bank's Asset Management team can help you determine what option is right for you.

Some trusts are either revocable or irrevocable in nature. Other times, you can choose if you want a revocable or irrevocable trust. Not sure what the right option is for you? Our Wealth Management Team can help! Here’s the difference:

  • Revocable Trust: Can be changed or terminated by the grantor during their lifetime and will convert to an irrevocable trust upon your death. Most trusts can be set up as revocable. Revocable trusts avoid probate and enable you to make changes due to a change in your family or financial situation.
  • Irrevocable Trust: Once created, this type of trust can’t be changed or ended. Most trusts can be set up as irrevocable. The main benefit is that assets in an irrevocable trust aren’t considered personal property, so they don’t count toward any estate taxes owed and are also excluded from bankruptcy and claims by creditors upon your death.

What is the Estate Tax in VT & NH?

Your estate tax can vary depending on where you live. Below is a summary to help you understand what to expect in your state.

Depending on where you live, your estate could be subject to both federal and state tax. Here’s what to know:

  • Currently, the federal estate tax threshold is $11.7 million. So, if your estate’s total value is less than that, it won’t have to pay the federal estate tax.
  • In Vermont, the threshold is currently $5 million for your gross estate value plus adjusted taxable gifts made within two years of your death. So, it’s possible you could be subject to state estate tax but not federal if your estate is worth more than $5 million but less than $11.7 million. Estates worth less than $5 million won’t be subject to an estate tax at all.
  • New Hampshire doesn’t have a state estate tax.

The Importance of a Spendthrift Clause

With a spendthrift trust or clause, you give the trustee power over how or when inherited funds are used. This may especially be useful with a trust for a minor child or anyone you think might spend through the trust quickly. With advance planning, you can help your trust beneficiaries by making sure the funds last as long as needed.

Let us help with Your Trust and Estate Planning Needs

Union Bank is your local wealth management resource in Northern Vermont and Northern New Hampshire. We approach personal trust management with the same core values we bring to all of our services: personalized and attentive customer care to help us get to know you and your financial goals. When it comes to planning for your family’s future, trust Union Bank to help you make the best decisions for your own interests and those of your beneficiaries. Contact our Wealth Management team today or visit your nearest office.