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Are income trusts right for my estate plan?

On Behalf of | Jul 21, 2023 | Estate Planning |

If you are approaching retirement in California, you may want to find ways to draw a steady income after you stop working. Having sufficient money to live on is especially important if you plan on delaying Social Security payments. Establishing an income trust can provide you with a steady source of funds.

What is an income trust?

Income trusts are a popular estate planning tool, as they have several advantages. While they are true to their name by providing income to beneficiaries, some people like to put their assets in an income trust to lower their current money flow, thus potentially reducing taxes. Although income trusts may not have the same profitability as stocks, their goal is to minimize volatility and ensure that investors will have a steady income stream.

When considering income trusts, you’ll find four major types:

  • Royalty trusts that generate income from energy companies
  • Investment trusts, commonly known as mutual funds
  • Real estate investment trusts
  • Business trusts, with income coming from a single company

Income trusts have several advantages. The money generated is not subject to income taxes. They also incur less risk, allowing investors to diversify their holdings among companies.

Setting up an income trust

Even if you already have an estate plan in place, you can change or add to it with an income trust. Before you create an income trust, it’s a good idea to determine whether this estate component is appropriate for your situation.

Income trusts are only one alternative to stocks and bonds. Consulting with a financial advisor can help you determine what path you want to take if you want to go beyond conventional investments and place them in various financial instruments.