Whether you're seeking to manage your own assets, control how your assets are distributed after your death or looking for a way to safeguard personal and professional assets from liability, trusts can help you accomplish your wealth planning goals.
Their power is in their versatility - many types of trusts exist, each designed for a specific purpose. Although trust law is complex, we can help you learn the basics, establishing you as a valuable member of your own PNC Wealth Management team.
What is a Trust?
A trust is a legal entity that holds assets for the benefit of another. Basically, it's like a container that holds money or property for somebody else. There are three parties in a trust arrangement:
- Grantor: (also called a settlor or trustor) The person(s) who creates and funds the trust
- Beneficiary: The person(s) who receives benefits from the trust, such as income or the right to use a home, and has what is called equitable title to trust property
- Trustee: The person(s) who holds legal title to trust property, administers the trust, and has a duty to act in the best interest of the beneficiary
You create a trust by executing a legal document called a trust agreement. The trust agreement names the beneficiary and trustee, and contains instructions about what benefits the beneficiary will receive, what the trustee's duties are, and when the trust will end, among other things.
Funding a Trust
You can put almost any kind of asset in a trust, including cash, stocks, bonds, insurance policies, real estate, and tangible assets. The assets you choose to put in a trust will depend largely on your goals. For example, if you want the trust to generate income, you should deposit or invest in income-producing assets, such as bonds, in your trust. Or, if you want your trust to create a fund that can be used to pay estate taxes or provide for your family at your death, you might fund the trust with a life insurance policy.
Why Use a Trust?
There are a variety reasons why creating a trust may be the right solution:
1. Minimize estate taxes
Generally assets that have been transferred to an irrevocable trust more than three years prior to your death and following tax-planning strategies are not included in your gross estate when you die for estate tax purposes. It is important to note, however, that gift taxes may have to be paid at the time of the original transfer to the trust. However, any appreciation in the assets after the transfer will avoid both estate and gift taxes.
2. Shield assets from potential creditors
Lawsuits, taxes, accidents and other financial risks are facts of everyday life. And though you'd like to believe that you're safe, misfortune can befall even the most careful person. What can you do? First, identify your potential loss exposure and then implement strategies that are designed to help reduce that exposure without compromising your other estate and financial planning objectives. A protective trust can protect both business and personal assets from most creditors' claims. A trust works because it splits ownership of trust assets; the trustee has equity ownership and the beneficiaries have beneficial ownership.
3. Avoid the expense and delay of probate
Assets in both a revocable and irrevocable trust do not pass through probate at your death. The assets are distributed in accordance with the terms of the trust, which may even continue past your death. Your estate, therefore, avoids the cost and delay of probate. A further benefit of using a trust is that you will have increased privacy. A will is a public document (i.e., anyone can go down the probate court and review the contents of your will). However, in many states, a trust remains private.
4. Preserve assets for your children until they are grown
In case you should die while your children are still minors, generally, under age 18, you may want to use a trust if you plan to leave your assets to them. Because you cannot predict when you will die, you may want to set up a contingent trust in your will in case you die when your children are still minors. The assets could then be transferred to the trust, and the trustee could manage the assets and make the necessary distributions when your children reach an older age.
5. Create a pool of investments that can be managed by professional money managers
6. Set up a fund for your own support in the event of incapacity
Another reason to use a trust is to protect yourself in case of a mental or physical disability or other age-related problems. You can set up a trust, name yourself as the beneficiary, and then name yourself and another person as the trustees. If you become infirmed or mentally incapacitated, the other trustee can manage your assets for you and distribute those assets in a way that is in your best interest.
7. Shift part of your income tax burden to beneficiaries in lower tax brackets
By transferring income-producing assets to certain types of trusts, you may be able to transfer income to those heirs who are in a lower income tax bracket than you. By doing this, you may be able to reduce your own income taxes.
8. Provide benefits for charity
These types of trusts may provide you with both income and estate tax benefits, and also allow you to give to your favorite charity upon your death.
Types of Trusts
Asset Protection Trusts
At one time or another you may have faced the specter of a lawsuit that threatens your personal wealth. Individuals in some professions are more likely than others to face an increased risk of lawsuits, including entrepreneurs and corporate board members. But there is a way to protect your assets from potential future liabilities.
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PNC Delaware Trust Company provides highly customized fiduciary and custody services for trusts administered under particular provisions of Delaware law. PNC has a legacy in Delaware spanning over 150 years. Its knowledgeable and experienced team of professionals dedicated to Delaware Advantage Trusts, a stream-lined process, and extensive resources to assist clients and their attorneys, distinguish PNC from other providers.
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A Delaware Dynasty Trust is a powerful estate-planning tool that can be used to help reduce future transfer taxes, as your estate is passed from generation to generation. Because Delaware allows trusts to be structured to continue in perpetuity, property can be transferred to future generations without being taxed each time.
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Important Legal Disclosures and Information
The PNC Financial Services Group, Inc. (“PNC”) uses the marketing name PNC Wealth Management® to provide investment and wealth management, fiduciary services, FDIC-insured banking products and services, and lending of funds through its subsidiary, PNC Bank, National Association (“PNC Bank”), which is a Member FDIC, and to provide specific fiduciary and agency services through its subsidiary, PNC Delaware Trust Company or PNC Ohio Trust Company. Securities products, brokerage services, and managed account advisory services are offered by PNC Investments LLC, a registered broker-dealer and a registered investment adviser and member of FINRA and SIPC. Insurance products may be provided through PNC Insurance Services, LLC, a licensed insurance agency affiliate of PNC, or through licensed insurance agencies that are not affiliated with PNC; in either case a licensed insurance affiliate may receive compensation if you choose to purchase insurance through these programs. A decision to purchase insurance will not affect the cost or availability of other products or services from PNC or its affiliates. PNC does not provide legal, tax, or accounting advice unless, with respect to tax advice, PNC Bank has entered into a written tax services agreement. PNC does not provide services in any jurisdiction in which it is not authorized to conduct business. PNC Bank is not registered as a municipal advisor under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Act”). Investment management and related products and services provided to a “municipal entity” or “obligated person” regarding “proceeds of municipal securities” (as such terms are defined in the Act) will be provided by PNC Capital Advisors, LLC, a wholly-owned subsidiary of PNC Bank and SEC registered investment adviser.
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What this means for you: When you open an account, we are required by Federal law to ask for your name, street address, date of birth (for natural persons) and other information as required to identify you. This may include a request or requests for confirmatory information such as presentation of your driver’s license and/or other document(s).
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