Wealth

Trust beneficiaries typically do pay taxes on distributions from a trust’s income, but they are not subject to taxes on returned principal from the trust’s assets. When money is distributed from a trust, the trust issues a K-1 form, which breaks down the distribution, or how much of the distributed money came from principal versus interest. The K-1 is the form that lets the beneficiary know the tax liability from the trust's distributions. At the same time, the trust issues Form 141, in which the trust deducts from its own taxable income any interest it distributes to beneficiaries.

A trust is a separate legal entity a person sets up to manage their assets. Trusts are set up during a person's lifetime to assure that assets are used in a way that the person setting up the trust deems appropriate. The two basic types of trusts are a revocable trust and an irrevocable trust. The owner of a revocable trust may change its terms at any time. They can remove beneficiaries, designate new ones, and modify stipulations on how assets within the trust are managed. The terms of an irrevocable trust, in contrast, are set in stone the minute the agreement is signed.

POAs are most commonly established when someone is elderly or if they face a serious, more long-term health crisis. However, this isn’t the only time a POA is established. They might also be created when a military family member is deploying overseas so that another person can act on their behalf should they become incapacitated. Alternatively, expatriate workers and families need to set a POA for their affairs in America while doing their work overseas. Younger people who travel a great deal might set up a POA so that someone can handle their affairs in their absence, especially if they have no spouse to do so.

Trusts and wills are both designed to transfers an estate to an heir or heirs, but the way they function is different. A will is a legal document that spells out how you want your affairs handled and assets distributed after you die. A trust is a fiduciary arrangement whereby a grantor (also called a trustor) gives a trustee the right to hold and manage assets for the benefit of a specific purpose or person. Trusts can have a limited term, the duration of the grantor’s or another person’s lifetime, and can hold assets and distribute them after the grantor’s or other person’s death.

Your net worth is calculated by totaling up your assets and subtracting any liabilities (debt). To increase your net worth, you can either increase your assets, or reduce your liabilities. To increase your assets, you can own a home or increase the equity in your home, owning another piece of real estate to use as rental property for extra income, increasing your investments, and even owning art or collectible items.