ORANGE COUNTY TRUST MANAGEMENT
WHAT IS A TRUST?
A trust is a written instrument 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 many cases, by the accountant. Trusts are often created to protect families to insure that assets are handled, in the future in, accordance with the donor’s desires. A trustee should consult a qualified CPA 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 want to assure that your family members to follow your intentions of passing the inheritance, then a Trust is for you. 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, from taxable income, dollars in the year donation to the Trust, but allowing extra time for the Trust to decide which charities they will be distributed to at a later time
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 can distribute 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, some taxes are paid by the trust fund, and depending on the size, it can be higher than your beneficiary’s own income taxes.
Cost of Trust administration must also be taken into consideration.
Contact Wynkoop & Associates today to analyze your personal situation.
WHAT IS TRUST ACCOUNTING?
Trust accounting is bookkeeping of trust accounts in accordance with state laws and regulations and the presenting of Trust financial Statements in a format that is acceptable to the courts. . 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
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.
SET AN APPOINTMENT NOW
CPA Chris Wynkoop has over 35 years of experience offering accounting, management and tax preparation for trust funds. Contact him today for a consultation about setting up a trust fund for your loved ones.