If you ask trust attorneys whether a trust is a beneficial estate planning tool, the answer will most likely be yes. Trusts are beneficial in minimizing estate taxes and in avoiding probate. There are many other benefits as well. Here are some common examples.
What is a trust?
Trusts are essentially fiduciary agreements based on the trust and confidence that exists between the trustee and the person making the trust, known as the trustor. The trust agreement authorizes the trustee to manage the trust assets and distribute them to the named beneficiaries, according to the terms of the trust agreement. There are many different types of trusts with their own benefits.
The principal benefits of a trust
Similar to a will, a trust provides a way for you to decide how and when your property will be distributed upon your death. However, a trust can also provide a way to protect that property in situations where a certain beneficiary may need assistance in managing that property. Another benefit is that a trust can help you avoid the expensive and time-consuming court process known as probate.
The main benefits of a revocable trust
Trusts are classified as either revocable or irrevocable based on how the trust operates. A revocable trust, sometimes referred to as a living trust, allows the trustor to modify the terms of the trust or revoke the trust entirely, at any time while the trustor is still alive. Upon the trustor’s death, the trust then becomes irrevocable. A revocable trust is very flexible because it allows you to modify your instructions in order to address any changes in your circumstances or intentions. The trustee does not take control of a revocable trust until after the trustor’s death or incapacity.
The primary benefits of an irrevocable trust
An irrevocable trust cannot be modified by the trustor once it has been created and executed. This particular difference makes an irrevocable trust helpful in ways that a revocable trust cannot. Once you establish your irrevocable trust, the assets you placed in the trust are essentially out of the reach of creditors, legal judgments. The trust property does not have to go through probate court and will not be subject to estate taxes. Although you must give up control over the property you place an irrevocable trust, you trade that loss of control for more favorable tax consequences. If you still have questions, contact our trust attorneys.
How the A and B Trust Structure Works
A common type of trust structure among married couples when creating their estate plan is the A and B trust structure. The A Trust component, also referred to as the marital trust, affords benefits to the surviving spouse. That spouse then includes the trust property in his or her taxable estate. The second component, the B Trust or bypass trust, basically bypasses the surviving spouse’s estate for the ultimate benefit of the couple’s children or some other heir.
Types of Charitable Trusts
A charitable trust is simply a type of trust that names a charity as the beneficiary. There are two types of charitable trusts: The Charitable Lead and the Charitable Remainder. With a Charitable Lead Trust, certain assets will be distributed to the charity you have selected, while the remainder is distributed to your chosen beneficiaries.
A Charitable Remainder Trust is set up in almost the opposite way. The trustor of a Charitable Remainder Trust receives a specified amount of income from the trust for a specified period of time. After that time, all remaining assets will be distributed to the charity of your choice.
There are several other trusts available
There are several other types of trusts commonly used in estate planning. For example, the purpose of an Irrevocable Life Insurance Trust (ILIT) is to eliminate the proceeds from your life insurance policies from your taxable estate in order to save taxes. A Generation-skipping trust, when combined with the generation-skipping tax exemption, allows trust assets to be distributed to your future generations while still avoiding the tax.
A Qualified Terminable Interest Property trust (QTIP) is most often used to provide income for the surviving spouse during that spouse’s lifetime. Then, after the surviving spouse passes away, the remaining assets go to the named beneficiaries. A Grantor Retained Annuity Trust (GRAT) is a special type of irrevocable trust funded by gifts from the trustor, which then passes on future appreciation on those assets to the next generation.
If you have questions regarding trusts or any other estate planning matters, please contact the experienced trust attorneys at Gaughan & Connealy for a consultation. You can contact us either online or by calling us at (913) 262-2000. We are here to help!
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