What Role Do Trusts Play in Financial Planning?

Matt Krajniak |

When planning for the future, a family will need to consider a wide variety of factors. Financial planning can address how different types of assets will be managed, ensuring that investments are appropriate and that different family members can improve the likelihood of having the resources they need in the future. During this process, a family may want to take steps to determine the best ways to protect certain types of assets and ensure that assets will be used for the proper purposes and that they can be passed on to loved ones. These issues may be addressed during the estate planning process, and in many cases, trusts may be used to manage assets and distribute them to different beneficiaries.

It’s important to note that trust documents should be established by a qualified attorney.  We are always happy to work with your chosen professionals to create the most robust plan possible.  

Benefits of Different Types of Trusts

A trust is a legal agreement in which certain assets will be managed by a trustee and distributed to beneficiaries according to the instructions of the trustmaker. A person who creates a trust is known as the grantor or settlor, and they will transfer assets into the control of the trust itself while providing instructions for when and how the assets in the trust will be distributed to different beneficiaries. Multiple types of trusts are available, including:

  • Living trusts - These are some of the most commonly used types of trusts, and they can provide a family with flexibility as they determine how assets in the trust will be managed and used. In many cases, the grantor will also be the trustee, and a successor trustee will be appointed who will manage the trust after the grantor’s death or incapacitation. The grantor may use the assets in the trust to address their own needs during their lifetime, and they may also distribute assets to other beneficiaries either before or after their death. Since these trusts are revocable, their terms can be changed at any time to address the changing needs of a person or family.
  • Irrevocable trusts - These trusts can help protect assets from creditors or judgments. While the grantor may have less control over their assets once an irrevocable trust is created, the goal of the trust is to help ensure that assets will be protected and eventually distributed according to their instructions. Commonly used types of irrevocable trusts include irrevocable life insurance trusts (ILITs) and grantor-retained annuity trusts (GRATs).
  • Special needs trusts - Family members may want to provide financial help for a loved one who has a disability or who cannot fully provide for themselves. However, transferring money or assets directly to a person may affect their eligibility for public benefits such as Social Security. By using a special needs trust, the grantor can make sure the money or assets given to a disabled person will not reduce the individual’s eligibility for government assistance.
  • Charitable trusts - Donations to charitable organizations or causes are often an important part of financial planning and legacy planning. Using trusts to make these types of donations can provide significant tax benefits. Charitable lead trusts allow a person to make donations throughout their lifetime, while charitable remainder trusts allow a person to use their own assets during their lifetime and donate any remaining amounts to charity after their death.

Contact The Krajniak Group for advice on Legacy Planning in Naperville

Creating a trust is only useful if it’s appropriately funded.  Helping you with titling your accounts correctly, choosing appropriate investment vehicles, and selecting beneficiaries that won’t accidentally undo your estate plan are paramount to doing our job well.  As you and your family plan for the future, you can take steps to address your own needs while also making arrangements to pass your assets to your loved ones, seeking to provide them with the necessary financial resources. The Krajniak Group can help you explore your options for using trusts and other estate planning tools, and we can help you manage investments and address other financial issues. Contact us at 630-364-2406 to learn more about The Krajniak Group for DuPage County financial planning services.

This information is not intended to be a substitute for individualized legal advice.  Please consult your legal advisor regarding your specific situation. 

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.