Trusts have long been thought of as an inheritance tool meant only for the super wealthy, thanks to the “trust-fund baby” stereotype in Hollywood movies. But, you don’t have to be a Hilton, Kardashian, or Richie Rich’s parents to set up a Trust. Anyone who wants to leave precise instructions on how their assets should be managed after they’re gone can set up a Trust.
A Trust can be a tool to manage the wealth you’ve built — helping the people, causes, and organizations that have meant the most to you during your lifetime. To establish a formal Trust, the first step is to speak with a financial professional or an estate attorney to review your options.
Here are five things you should know about Trusts before you start estate-planning.
1. There are three key parties involved in a Trust.
A grantor is the person who establishes the Trust and decides what property will be put into the Trust. Trusts can hold anything: cash, savings accounts, stocks, property, collectables, other investments — whatever you decide you want to leave to your beneficiaries.
Existing bank and investment accounts can be placed in a Trust once the Trust is established. New account(s) can be opened in the name of the Trust.
The trustee is the person(s) or entity who manages the Trust — sometimes for a fee — until its purpose has been achieved. The trustee has a fiduciary responsibility to oversee the Trust and ensure the guidelines established by the grantor are followed. Essentially, the trustee is legally obligated to be honest and trustworthy. Any action the trustee takes must always stay true to the instructions in the Trust agreement, even after the grantor’s death.
A Trust is created for its beneficiary. At some point, the beneficiary will receive proceeds from the Trust in accordance with its terms. The beneficiary may be a person — a child, grandchild, family member, or others — but it can also be a charity or business.
2. Setting up a Trust can be an emotional part of your estate-planning process.
No matter how much money you have, we all share at least one thing in common: We all want our loved ones to be well taken care of after we’re gone. Planning for the unexpected can help ease your mind when it comes to the future of your loved ones. Thinking about your own death is difficult, but necessary. Thankfully, Trusts exist to make sure your final wishes are granted.
3. Revocable Trusts vs. Irrevocable Trusts
When it comes to Trusts, grantors can get as specific as they want: Land Trusts, IRA Trusts, Qualified Personal Residence Trusts, Charitable Trusts, etc. But all Trusts are one of two types: revocable or irrevocable.
With a Revocable Trust, the grantor controls the Trust’s assets during their lifetime. They can add to or remove property from the Trust, change its beneficiaries, and even dissolve it.
The specifics of an Irrevocable Trust are less flexible. Sure, you can modify or, in some circumstances (which vary by state), dissolve it — but it can be much more difficult.
Aside from the finality of Irrevocable Trusts, the main difference between Revocable and Irrevocable Trusts involves taxes. Assets in Revocable Trusts are still considered the grantor’s property, so they continue to pay taxes on the income generated by the Trust assets, and the Trust assets are still considered part of the grantor’s estate for estate tax purposes. Irrevocable Trust assets are generally no longer considered part of the grantor’s estate and any income or capital gains taxes owed on Trust assets are paid by the Trust. By removing assets from the grantor’s estate, an Irrevocable Trust can help reduce or avoid estate taxes at the grantor’s death.
4. Trusts can help you avoid probate.
One reason some people prefer Trusts is so they can avoid probate. Probate is the judicial court’s process of deciding upon the validity of a public document. Avoiding that process is one less step that has to happen before your assets can be distributed as you intended.
Any assets included in a Trust do not need to go through the probate process, as long as the assets were added before the grantor’s death.
5. Trusts can help you control your assets.
Do you ever dock your kid’s allowance because they forget to take out the trash? Instead of giving them the full $10, you only pay them $8. And if they don’t do any of their chores, you give them zip.
Allowances serve as an incentive. If your child does X, Y, and Z, you’ll pay them handsomely (for a 7-year-old, anyway). Similarly, Trusts can allow the grantor to control the assets long after they’re gone.
While some Trusts are set to allow the trustee to make withdrawals from the Trust for distribution to beneficiaries, others are set up with strict rules and restrictions determined by the grantor.
Examples of different distribution plans and provisions include:
- Annual distribution: The beneficiary receives a certain amount from the Trust each year.
- Tiered distribution: The beneficiary receives X% at age 18, Y% after graduating college and Z% after turning 35.
- Specific provisions: The grantor wants the beneficiary to only spend the money on something specific, like education (tuition), travel, or starting a business.
- “Spendthrift” clause: The beneficiary can’t transfer rights to future payments from the Trust to a third party (effectively preventing the beneficiary from squandering the inheritance before they receive it and protecting the assets from the beneficiary’s creditors).
Distribution plans and provisions help the grantor ensure the money, and, in some cases, may also be a way for concerned parents to provide for their children while also limiting how the money is used (think: not on things like expensive cars or gambling).
Ready to take the next steps?
To keep your legacy intact, consult with your Trust professional to create a Trust. Then follow the simple steps in our guide below to open a checking, savings, or certificate of deposit (CD) in the name of your Trust with us.
Comment on this article
georges on May 21, 2019 at 11:04am
Why not mention the Federal protection of assets? is it based on the No of beneficiaries? or is it a mere 250,000 for the trust???
oldinmaryland on May 21, 2019 at 6:08pm
But if you want to have a joint checking account with each account holder having their own individual trust, Ally will not allow you open one. This is why we are in the process of moving our accounts to a different bank.
Ally on May 21, 2019 at 6:09pm
Thanks for your comment! We offer accounts with various titles including both joint accounts and trust titled accounts. For more information visit our website: https://www.ally.com/go/learn/trust-account.html
George T. on May 21, 2019 at 10:01pm
Ver good I got a lot of info., I wanted to know
Barb on May 22, 2019 at 11:56am
Good information for the many!!
Ally on May 24, 2019 at 2:56pm
Hi George, we’re so glad you found this helpful. Thanks for reading.
Ally on May 24, 2019 at 2:58pm
Hi Barb, we love hearing this! Thank you for your comment.
Deidre M. on February 12, 2020 at 4:45pm
I was afraid of trusts before I read this article, because I originally thought my monies would be out of my reach/ control. Now it is something I will consider. A Trust is not as emotional as a Will because you are still active in determining who gets what throughout . As I read the article my thoughts were on who gets what rather then on the thought of my dying.
annie d. on February 12, 2020 at 10:48pm
very easy to understand explanations for things that are so often made so complicated.
Ally on February 13, 2020 at 2:00pm
Hi Deidre, we’re glad you found this article helpful. Thanks for reading.
Ally on March 2, 2020 at 2:03pm
Hi Annie, we love hearing this. 😊
Paul Y. on May 7, 2020 at 9:36pm
How do I open or establish a bank trust account?? What documents do I need? what and who needs to be involved in setting up this trust account? I need and want a Bank Trust Account and the process on how and what to do to establish this. Can you assists me in in this process?
Ally on May 7, 2020 at 11:19pm
Hi Paul, follow this link to find our trust application: https://www.ally.com/resources/pdf/bank/trust-application.pdf
Ariel on May 20, 2020 at 12:12pm
Hi, So if I’m interested in setting up a trust all I need to do is use that pdf link and complete and send it in the notarized form? No need for a lawyer/estate planner? All the info I’ve read online seem to suggest I need to talk to a ‘specialist’ (attorney, financial professional etc) to open or set up a trust account. Please confirm. Thank you
Ally on May 20, 2020 at 12:13pm
Hi Ariel, if you’ll give us a call at 1-877-247-2559 or chat with us online at ally.com, one of our team members will be able to help you get started.
JerryG on May 21, 2020 at 3:09pm
I tend to go with businesses that provide specific detail concerning the product/Trust. This not only tells me they are actively promoting the product, but they'll also support their clients as well. Where-as, others not providing details, tell me trusts are not a priority for them and will likely not make the effort to provide assistance for the customer needs. Ally seems to stand out and ahead of the rest in this regard.
Esther on June 11, 2020 at 12:03am
Hi. My mother currently has a savings account with Ally Bank and she recently created a revocable living trust. Can she either (1) transfer the account and change the name on it to that of the trust, or (2) make her trust the sole beneficiary of her account?
Ally on June 15, 2020 at 4:06pm
Hi Esther, if you’ll give our team a call at 1-877-247-2559 or chat with us online at ally.com, a team member would be happy to look into your specific account further and advise.
Bonnie P. on July 11, 2020 at 3:25pm
Ally on July 11, 2020 at 5:55pm
Thanks for reading, Bonnie.😊
joan p. on August 12, 2020 at 9:51am
I have my assets in a trust at your bank. There are 5 children involved. Does the trust cover the $250,000 federal coverage for all 5 or $250,000 for each?
Ally on August 12, 2020 at 10:13am
Hi Joan, if you’ll please give us a call at 1-877-247-2559, or chat with us online at ally.com, one of our team members will be more than happy to review your account further and advise.
Henfan on November 7, 2020 at 2:49pm
Well informed, thank you.
Ally on November 7, 2020 at 3:33pm
Thanks for reading, Henfan.
John F. on November 18, 2020 at 3:28pm
Problem was there was no mention of the costs involved in setting up a trust. Therefore the value was very limited.
Ernest E. on December 26, 2020 at 12:57pm
Does Ally pay interest on the Trust funds they hold and manage?
MARGARET A. on March 9, 2021 at 4:29pm
Does a trust earn interest? If so what is the rate.
Jim C. on February 1, 2022 at 4:10pm
I am concerned that a trust is going to cost quite a bit. I am working on it though I do have an advisor who works with this kind of legal matter. I will see how it comes out in another 4 months.
Costs? on April 18, 2022 at 5:48pm
I see no information anywhere on how much this costs.
Ally on April 18, 2022 at 5:49pm
Hi, please give us a call at 1-877-247-2559, so we can assist further.
Rose on June 16, 2022 at 7:20am
Great information and good subject for consideration.
Ally on June 16, 2022 at 7:21am
Hi, thanks for reading!