Financial Planning: What You Should Know For Setting Up a Trust

by Financial Planning 04 March 2021

Financial Planning

Setting up a trust is a great way to protect your assets while providing financial stability for the future of your loved ones. In very simple words, you can think of a trust as an agreement that is binding by law. In such an agreement, someone that owns the trust can transfer their assets to a beneficiary after their death in accordance with certain terms and conditions. When it comes down to estate planning, setting up a trust is a popular option.

Whenever you are looking to set up a trust, you need to make sure that you are working with leading consultants like IPP financial planners. This is because setting up a trust requires both legal engagements as well as financial documentation. Some of the wealthiest individuals in the world purchase everything from estates and mansions to expensive yachts in the name of their trusts. This is an important tax saving mechanism that can boost your wealth management strategies.

A person that is a grantor is one that is responsible for getting the trust or setting it up. In simple words, they are the real owners of all the assets. Accordingly, a trustee is a person who takes responsibility for managing the money or assets that have been set aside in a trust. The trustee then manages the property for the benefit of the grantor or a beneficiary.

However, as with any financial arrangement, there is a lot to think about when setting up a trust. In this article, we discuss some of the most important ones.


Once you have made the decision to set up a trust, it is vital that you designate roles to everyone involved in your trust. Always start by choosing whether someone involved in your trust is going to be a settlor, a trustee, or a beneficiary, as although these roles can overlap, there needs to be total clarity. For instance, a trustee can be a single individual, or a group of people, or even a legal company.

The trustee, whoever that might be is handed over the entire property for safe-keeping. Likewise, a beneficiary is an individual that is supposed to receive the property that is being safeguarded by the trustee. In many instances, a beneficiary can be a child and the trustee can hold the property until they reach adult age.

Furthermore, a settlor is an entity that establishes trust. The settlor goes by several other names like a donor, grantor, trustor, and trust maker, and their role is to legally transfer control of an asset to a trustee, who manages it for one or more beneficiaries.

Making these roles clear can be accomplished by working with an attorney, or if a bank or trust company is appointed as trustee, they can also provide trust administration services to ensure that the trust is appropriately managed over time.

Types of Trusts:

Generally speaking, trusts may be broadly defined as revocable or irrevocable. Revocable trusts can be altered during the life of a grantor, whereas irrevocable trusts cannot. Correspondingly, choosing the right type of trust for your needs can be overwhelming. You need a trust that is well suited to the extent of your wealth, the risk of your assets, and the needs of your heirs or beneficiaries. On the whole, trusts are flexible and can be built to your requirements and so comparing different options is strongly recommended.

A bare or nominee trust is where a trustee is only a nominee. In these cases, the trustees must simply follow the lawful instructions of the beneficiary in relation to the assets held in the trust.  On the other hand, a discretionary trust is guided by the trust instrument (a legal document that might be a deed or other instrument) and a letter of wishes by the settlor, meaning that assets are administered and distributed in accordance with what has been established by the settlor. In this second type of trust, the trustees have discretion over the appointment of income or capital to the beneficiaries, and there is no fixed entitlement.

On the other hand, when it comes to a discretionary trust, the trustees need to be far more stringent in handing over the assets. Discretionary trusts carry terms and conditions that have been laid down by the settlor. They want the beneficiary to do certain things only following which the trustees are allowed to hand over the asset.


Put simply, trusts are subject to different taxation than other ordinary investment accounts. Tax laws surrounding trusts make them an appealing option for estate planning. While some jurisdictions have now placed restrictions on some benefits associated with trusts, they are still perceived as a tax-efficient alternative to managing assets. Some trusts even enable tax liabilities to be deferred or removed altogether.

Different types of trusts are taxed differently and therefore taxes should be at the forefront of any discussions when drawing up plans for a trust. Given these points, trust beneficiaries must pay taxes on income and other distributions that they receive from the trust, but they will not pay taxes on returned principal (property that is available to produce ordinary income like dividends, interest, or rents). Moreover, in the United States, IRS forms K-1 and 1041 are required when filing tax returns that involve trust disbursements.

Ultimately, there are lots of factors to think about if you are considering going for a trust. Remember to take your time to ensure that you are making the best decisions for the future of your assets. Above all, if you feel overwhelmed by the responsibilities and challenges involved in the creation or management of a trust, then reaching out to a team of wealth management experts can help you to plan your next steps.

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Ariana Smith is a blogger who loves to write about anything that is related to business and marketing, She also has interest in entrepreneurship & Digital marketing world including social media & advertising.

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