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Preferred Branch

Mason City (641)423-1600 Change Location

Your Preferred Branch

Mason City Change Location

2601 4th Street SW
Mason City, IA 50401

Tel. (641)423-1600

Monday-Thursday: 9:00am - 4:00pm
Friday: 9:00am - 5:00pm
Sat: 9:00am - 12:00pm
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  • Charles City Branch
    300 North Main Street
    Charles City, IA 50616

  • Clarion Branch
    315 Central Avenue East
    Clarion, IA 50525

  • Kanawha Branch
    220 North Main Street
    Kanawha, IA 50447

  • Mason City State Street Branch
    33 East State Street
    Mason City, IA 50401

  • Mason City West Branch
    2601 4th Street SW
    Mason City, IA 50401

  • Mora Branch
    730 Forest Ave East
    Mora, MN 55051

  • New Hampton Branch
    124 West Main Street
    New Hampton, IA 50659

  • Osage Branch
    501 Main Street
    Osage, IA 50461

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All About Trusts


"How can a trust help me?"

Wouldn’t it be wonderful if you could look into the future and see things you planned unfolding just as you wished? As we all know, life doesn’t work that way, but there are tools to help ensure that your wishes are carried out whether you’re directly overseeing them or not.

One of the most common, and effective, of these tools is a trust. By definition, a trust is an arrangement in which someone’s property or money is legally held or managed by someone else or by an organization (such as a bank) for a set period of time.

But to many, trusts seem convoluted and only for the wealthiest of us. How do you know if a trust is right for you? Are they as complicated as they seem? Before getting started, we must first understand the basic concept of a trust and we must also lose the misconception that only the highly affluent need them.

The Basic Components of a Trust

All trusts have the same basic components:

  • Grantor or Settlor – The person creating the trust.
  • Trustee – A person or entity that agrees to hold the property or money in the trust for the benefit of someone else (the beneficiary).
  • Principal or Trust Fund – The actual property or money that is being held by the trustee.
  • Beneficiary – The person that benefits from the trust.

Other than the way they are created, the major distinguishing feature is the reason, or the purpose, for which they are created – and there are many. Establishing a trust can help you effectively grow assets, reduce your tax liability, protect and manage your property, and avoid the lengthy and costly process surrounding probate in some states.

Types of Trusts
There are basically two types of trusts, a living trust and a testamentary trust.

Living Trust
A living trust is a written legal document created while the grantor is still living. The document spells out who will act as “trustee” and contains all the detail and directions for the trustee to follow on behalf of the beneficiaries.

There are many reasons one might select a living trust, such as wanting to save on taxes, caring for an aging parent, or protecting assets from lawsuits and creditors. One of the biggest reasons though, is to avoid probate. This type of trust helps to avoid the lengthy and possibly costly process of having to go through the courts after the grantor’s death.

Revocable Living Trust
If the grantor sets up a living trust and requires the ability to alter that trust at any time, then it is set up as a revocable trust. The trust can then be revoked, altered and amended any time after the trust becomes effective. In addition, a revocable living trust helps ensure that the assets are always used for the grantor’s benefit, even if he/she becomes physically or mentally incapacitated. It would provide uninterrupted investment management at that time, as well as after the grantor’s death.

The revocable trust is ideal for those wanting to help their beneficiaries avoid probate and reduce estate taxes, as well as blended families; ensuring children from a previous marriage aren’t left out of estate benefits.

Having the control to alter the trust can be a big advantage, but also means the grantor is technically still the owner, and therefore still responsible for filing a trust income tax return. One downfall of this type of trust is the amount of time and money it may take to properly create it – it typically is more than the cost of creating a will.

Irrevocable Living Trust
An irrevocable trust cannot be revoked and the assets in the trust fund no longer belong to the grantor once the agreement goes into effect. It’s essentially the same as gifting the property or cash. However, since the grantor no longer owns the property, he or she is no longer responsible for paying taxes on it. The disadvantage: the assets are no longer the grantor’s property.

Many people use an irrevocable trust as a part of their estate tax planning. It is often created to avoid or reduce federal estate taxes upon their death. Keep in mind though, when transferring property to an irrevocable trust, the federal government treats this transfer as a gift and therefore the federal gift tax will apply. However, the beneficiary won’t have to pay estate taxes and essentially avoids paying tax if the property appreciates. A life insurance policy is often put in an irrevocable living trust as well, but only if the benefit is large enough to be subject to federal estate tax.

These trusts may also be set up to satisfy a property settlement as part of a divorce decree when the couple has minor children. The courts sometimes require the property to be placed in an irrevocable trust in order to preserve assets for the children. They can also be drawn up for elderly people looking to avoid the high cost of a nursing home.

Testamentary Trust
A Testamentary Trust, is a document set up under a Last Will and Testament and goes into effect only after the grantor dies. This type of trust is amendable while the grantor is living, but by nature becomes an irrevocable trust once it’s effective.

Some of the benefits of this type of trust include the ability to protect assets against creditors and misuse, or to reduce the federal estate taxes a spouse might owe upon the death of the first spouse. As with other trusts, there are many possible tax benefits.

It’s important to understand that it is difficult to avoid probate with this type of trust, as it is part of a will; and as part of a will, it may also cost a grantor more time and money to establish and alter.

Keep in Mind

If moving forward with a trust, keep in mind that trusts are formed under state law, so rules and regulations surrounding them may vary greatly from state to state. And remember, trusts do not replace a will.

There are many different trusts out there and as is true with all your estate plans, be sure to seek a trusted estate plan advisor for assistance. You just might benefit from setting one up. How nice would it be to give yourself the peace of mind the protection of a trust can provide?

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