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How Trusts Can Help You Meet Financial Goals


There’s a good chance you’ve probably heard of trusts, and you might even be vaguely familiar with what they are. But even many financially sophisticated high-net-worth individuals don’t understand how trusts can be used to help them meet a wide range of financial and estate planning goals.

What Are Trusts?

A trust is simply a legal document that details how your assets will be managed for the benefit of someone else. A trust arrangement involves three separate parties:

  1. The grantor — This is the person who creates the trust.
  2. The beneficiary — This is the person who benefits from the trust.
  3. The trustee — This is the person who will manage the assets according to the terms of the trust.

Meanwhile, there are two main kinds of trusts:

  1. Living trusts — These are created during your lifetime — hence, the name living trust — for the purpose of transferring property to trustees, such as family members or charitable organizations. There are two kinds of living trusts: revocable trusts, which allow you to change the terms or revoke the trust at any time, and irrevocable trusts, which can’t be changed without the beneficiary’s consent.
  1. Testamentary trusts — These are part of your last will and testament and don’t take effect until after you die.

Common Types of Trusts

There are many different kinds of trusts that can be used to accomplish a number of different financial and estate planning objectives. Following are three of the most common trusts and how they are typically used by affluent individuals and families:

  1. Charitable remainder trust (CRT) — This trusts enables you to “kill two birds with one stone.” Not only can you use it to benefit family members, like children and grandchildren, but you can also use it to leave behind assets to your favorite charity or charities.

Cash or property would be placed into the CRT. After you die, any assets that have not been distributed to your family beneficiaries (who have exclusive rights to distributions until their interests have terminated) would go to your designated charity or charities.

If you choose, you can receive annual income from the CRT for up to 20 years before you die. This makes a CRT a potential income generation tool that can help supplement income from a 401(k), IRA, pension plan or other retirement account. CRTs can also help you avoid capital gains taxes when you divest highly appreciated assets like stocks.

  1. Intentionally defective grantor trust (IDGT) — This trust is helpful in minimizing gift and estate taxes that may be due when you transfer ownership of your business to your heirs. When you transfer ownership interest in the business to the trust, it is considered a gift. As a result, the assets (as well as all future appreciation) are removed from your taxable estate, thus lowering estate taxes.

Any income generated by the trust will be taxable to you instead of your heirs. Therefore, assets in the trust are able to grow income-tax free, so your heirs may receive a larger estate after you die.

  1. Delaware statutory trust — This trust is used by many professionals, business owners and affluent families to protect assets from lawsuits such as malpractice or personal injury judgments. They are also sometimes used by soon-to-be spouses in lieu of a prenuptial agreement.

You would transfer your assets (including cash, business ownership, securities and real estate) to an irrevocable trust, where they would be protected from claims by creditors. In doing so, you give up some control over the assets in the trust but are still be able to direct how these assets are invested. You can also still receive distributions of trust income and principle.

Expert Assistance Required

Trusts are complex financial and legal documents that require expert assistance in order to be used for your maximum benefit. Be sure to speak with a tax and/or estate planning professional, as well as your wealth advisor, for more guidance on using trusts effectively.


The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC’s (“Frontier”) investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.