Professional trust management services in Orange County can help you eliminate the frustration of dealing with confrontations between beneficiaries and understanding of rules and regulations that often overwhelm those trying to administer a trust for friends or family members.
What is a Trust?
A trust is a fund that is set up by a single person, a family or an organization for a beneficiary. The responsibility of disbursing the funds is entrusted in a trustee—in this case, the accountant. Trusts are often created to protect families who have no experience regarding the responsibilities of handling large finances. A trustee should always consult a qualified Certified Public Accountant to assist in administering a trust.
There are many reasons for creating a trust. This can include protecting a family’s assets, providing for minors who are not capable of handling funds, saving for estate taxes, to prevent “wasting” of the funds of an entire family, etc.
A trust is a separate entity. It has its own tax ID number and “belongs” to no one until it is disbursed under the conditions set by the grantor of the trust.
What are the Benefits of Having a Trust Fund?
Despite the stereotypes, a trust fund isn’t just for millionaires. Trust funds make sense for many people, even for someone who just wants to leave money for their grandchildren to help complete their education.
1. If you don’t trust your family members to follow your intentions of passing the inheritance. This isn’t to say you don’t trust your family, in general. An independent 3rd party trustee can alleviate the stress. This may come up if you have children who have children from more than one marriage, and you intend to keep your estate intact, or you would like your grandchildren from his/her first marriage to inherit the whole or the majority of the estate.
2. Setting up a Charitable Annuity Trust or a Charitable Remainder Trust is a way to shield thousands, or even millions, of dollars while benefiting your favorite charity.
3. Trust funds can protect assets you cherish, such as a family business or a home that has been in your family for generations. This may even mean protecting your business from your family.
4. A trust distributes the assets to your heirs efficiently without the cost and delay of probate court. Probate court is a legal process that deals with assets and debts left behind after someone has died. It can cost between 5% and 7% of the entire estate.
5. A trust can ensure that your lifelong work is passed onto the one whom you really want it to go to. Sometimes, the way you want your estate disbursed is not entirely clear. Having a set trust with an executor will make sure your wishes are lawfully fulfilled.
Disadvantages of a Trust
While a trust fund may be best for many people who wish to leave their life’s work to their children, there are a few disadvantages of setting up a trust fund.
One disadvantage may be the high taxes that come with the trust fund. As a separate entity, taxes are paid on the trust fund, and depending on the size, it can be higher than your beneficiary’s own income taxes.
Tax funds also have an unfavorable tax rate that can vary. Contact Wynkoop & Associates today to analyze your personal situation.
Trust accounting is bookkeeping of trust accounts in accordance with state laws and regulations. These laws vary from state to state, so it is important to hire an accountant who is experienced in and familiar with the laws you live in—especially if the trust involves people who reside in multiple states. Trust accounting has specific recordkeeping requirement that is used to maintain accurate information for both the attorney and the client.
After a trust is setup by a grantor accounting must be done at least on an annual basis to reflect the beginning balance, changes in activity and ending balance
Trust accounting requires:
♣ Tracking all deposits and disbursements made through the account
♣ A detailed ledger that documents every transaction made for the client
♣ An account journal for the account tracking each transaction
♣ Monthly reconciliation of the account
Trust Tax Returns
After trust accounting is complete a tax return must be prepared to pay any tax liabilities the trust has incurred. A trust must pay taxes as if it was an individual.
An irrevocable trust fund has its own tax ID number, so taxes must be paid by the trust fund as if it was an individual. A revocable trust, for example, a living trust, continues to use the social security number of the individual as the tax ID number. Therefore, tax reporting 1099s are generated with this person’s tax ID number and the income is reported either on the joint or the individual tax return and paid at their usual rates.
Chris Wynkoop, CPA has over 35 years of experience offering accounting, management and tax preparation for trust funds for Orange County-based clients. Contact him today for a consultation about setting up a trust fund for your loved ones.
Contact Irvine CPA Chris Wynkoop to discuss solutions he can provide for handling the management, accounting and tax matters for your trust by calling (949) 851-1632.