Case Study - Decision Dilemma in Trust Association

Case Study - Decision Dilemma in Trust Association

Introduction

Trust is defined as a fiduciary association in which one party (trustor) gives another party (trustee), the right to protect the tile of an asset or possessions for the interests of third party (Abbin, B., 2008). Mainly there are two types of trusts; 1) living trust (Trust that becomes active during the lifetime of the trustor); 2) Testamentary Trust (It is a trust that is created according to the will of a deceased person). In this assignment, we are going to solve a case related to a widow and her trust management dilemma. The lady (Mrs. Camer) wants to modify her trust in order to ensure certain changes in her income streams.

Discussion

Mr. Camer has established an irrevocable trust (Trust that can not be amended or terminated without the authorization of the beneficiary) for her wife (Mrs. Camer). The main purpose for setting an irrevocable trust is to take an advantage tax and estate consideration. Main advantage of an irrevocable trust is that it eliminates all the events of ownership (Addleman, D., 1998)

Current Earnings of Mrs. Camer

Net proceed of $ 650,000 from the estate has been placed into the activated trust account

Currently Mrs. Camer is earning returns from two sides. Returns on mutual funds used by the bank are approximately 2%.

And 4.75% on interest income from a fixed income fund

So,

The return that Mrs. Camer will earn from mutual fund used by the bank equals to ($ 650,000 * 2%) = $ 13000.

Return that Mrs. Camer will earn from fixed income fund is equals to ($ 650,000 * 4.75%) = $ 30,875.

Therefore, Current earnings of Mrs. Camer are $ 30,875 + $ 13000 = $ 43875 annually

And her monthly income would be ...