An accumulation trust is a type of trust where the income generated by the trust assets is not required to be distributed to the beneficiaries but can be accumulated within the trust. This allows the trust assets to grow over time, potentially increasing the overall value of the trust.
Key Features of an Accumulation Trust:
- Income Accumulation: The trust can retain and reinvest income, which can lead to significant growth of the trust’s principal over time.
- Tax Implications: Income retained in the trust is taxed at trust income tax rates, which can be higher than individual rates.
- Flexibility: Trustees have the discretion to distribute income or principal to beneficiaries as needed, according to the terms set by the grantor.
- Asset Protection: The assets within the trust are generally protected from creditors of the beneficiaries.
Should Your Estate Plan Include an Accumulation Trust?
Whether or not an accumulation trust is suitable for your estate plan depends on various factors:
- Beneficiary Needs: If your beneficiaries are young, have special needs, or may not be financially responsible, an accumulation trust can help manage and protect the assets for their future benefit.
- Tax Considerations: Consider the tax implications of accumulating income within the trust versus distributing it to beneficiaries.
- Control and Flexibility: If you want to maintain control over how and when beneficiaries receive assets, an accumulation trust provides flexibility for the trustee to make decisions based on changing circumstances.
- Estate Size: For larger estates, an accumulation trust can be a way to manage and preserve wealth over generations.
Steps to Establish an Accumulation Trust:
- Consult with an Estate Planning Attorney: A professional can help draft the trust document to meet your specific needs and objectives.
- Define Terms and Conditions: Clearly outline how income and principal should be managed and distributed.
- Choose a Trustee: Select a trustee who is capable and trustworthy to manage the trust according to your wishes.
- Fund the Trust: Transfer assets into the trust to begin its operation.
An accumulation trust can be a valuable part of an estate plan for those looking to manage and protect their assets long-term. Eastham Law Offices can help you determine if this strategy aligns with your goals and guide you through the setup process. To schedule an appointment, call us at 561-395-6800 or complete our intake form online. We look forward to assisting you.