Settlor Of A Trust

How a trust can lighten the burden of raising a family

My friend Allan gave me a call this week. “Tim, I just got an e-mail letting me know about my high-school reunion in the fall,” he said.

“Sounds like fun, Al,” I replied.

“Tim, I graduated 25 years ago, and I feel like I’ve been wasting time. The reunion is coming up fast. I only have four months to make something of myself. Got any ideas?”

Then it hit me. “Al, why don’t you set up a family trust?” I suggested. “It really doesn’t matter how successful you’ve actually been – most successful people have a family trust. ”

“Tim, I like it! So, when people at the reunion ask what I’m doing today, I can just tell them the truth – I play video games – but mostly I watch over my family trust. Wow, that sounds great. Uh, Tim, what am I going to do with this family trust once it’s set up?”

I then shared with Allan a primer on how a trust can save a family significant tax dollars. Here are the highlights.

Trust defined

A trust is actually a legal relationship between the settlor (the person who transfers the assets to be held in trust), the trustee (the person(s) who holds the assets that were transferred), and the beneficiary (the person(s) for whom the assets are being held).

Now, from a tax perspective think of a trust as a vehicle to hold certain assets you choose to place in the trust. The trust is treated as a separate individual for tax purposes, and any income earned by the trust will be subject to tax.

The trust can pay the tax, or the trustees may choose to distribute the income to the beneficiaries, in which case the trust claims a deduction for the amount distributed and the beneficiaries face the tax on that income instead (the beneficiaries will receive a T3 slip showing the amount of income they must report). So, it’s possible to sprinkle income to various family members (beneficiaries) who might pay tax at lower rates than you might face.

You should know that there are two types of trusts: An inter vivos trust, which is a trust you might establish during your lifetime, and a testamentary trust, which is established by your will after your death. I’m talking today about inter vivos trusts. These trusts are taxed at the highest possible marginal tax rate – which is not a good thing, obviously. So, you’ll generally want to distribute the income of the trust to beneficiaries to face tax in their hands at lower rates.

Colorado Living Trust | Colorado Revocable Trust | Colorado Trust

A Colorado Living Trust (also known as a Colorado Revocable Living Trust or just a Colorado Trust) has become a growing alternative to the traditional Colorado Last Will and Testament (“Colorado Will”) as a way to pass property on when one dies due to its flexibility and tremendous benefits while one is both alive and upon his or her passing.

In addition to providing for the disposition of one’s property, like a Colorado Will, a Colorado Living Trust also provides the following benefits:

•   Allows smooth transition of management upon incapacitation and death;

•   Provides care of disabled and handicapped children and grandchildren;

•   Can avoid Colorado probate proceedings and any other state you may own real property;

•   Can reduce settlement expenses in comparison to a probate proceeding involving Colorado Wills;

•   For married couples, minimizes and potentially eliminates estate taxes;

•   For beneficiaries, a Colorado Trust can keep assets out of their own estates which can further limit estate taxes; and

•   Offers asset protection instead of distributing the assets outright.

What is a Colorado Living Trust

In essence, a Colorado Living Trust is simply a document that consists of one’s plan for the management and disbursement of his or her assets that springs into action upon his/her incapacity or upon his/her passing.

Similar to a Colorado Will, Colorado Trusts are “revocable,” meaning that they can be modified or eliminated at any time while one is competent to do so.  A Colorado Living Trust is established by a written agreement or declaration which appoints a “trustee” to administer the property, and which gives detailed instructions on how the property is to be managed and eventually distributed.

Who Can Establish a Colorado Living Trust

Any competent adult eighteen years and older can establish a Colorado Living Trust.

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