For those of you who have been following our blog, you may already be relatively familiar with the concept of a trust and their numerous benefits.
For those of you who aren’t, here’s the lowdown: A trust is a legal arrangement that allows you to appoint a third-party to manage assets for the benefit of another. A well-designed trust can be useful for avoiding probate, reducing taxes, and saving time.
While there are many different types of trusts, most trusts can be classified into one of two categories—living trusts and testamentary trusts. Living trusts—sometimes called an inter-vivos trust—are set up while the creator is still alive. Testamentary trusts are outlined in a will, and only go into effect after the creator’s death.
We’ve outlined eight common types of living and testamentary trusts below.
Revocable trusts. If you set up a revocable trust, you are able to keep control of the assets or property within. You are also able to amend, revoke, terminate, or change the terms of the trust whenever you wish.
Irrevocable trusts. An irrevocable trust generally transfers assets out of your control, so you cannot change or revoke the terms after the trust is in effect. This type of trust is typically most effective for avoiding probate and estate taxes.
A/B trusts. An A/B trust is any kind of trust that splits into two when the creator dies—for example, a credit shelter trust and a marital trust. The credit shelter trust can hold an amount up to but not exceeding the estate-tax exemption. The marital trust then holds the remainder of the assets in the trust, which are protected from estate tax because of the unlimited marital deduction. When created effectively, an A/B trust can help you eliminate or reduce the federal estate taxes you must pay.
Charitable trusts. You can create a charitable trust for the benefit of a charitable organization. This type of trust may allow you to deduct a percentage of the amount contributed to the trust as a current charitable income tax deduction. A charitable trust can be either living or testamentary, but it must be an irrevocable living trust if you plan on making distributions while you are living.
Generation-skipping trusts. With this type of trust, property can be left to your grandchildren or even generations after without being subject to estate tax or generation-skipping tax after your children die.
Qualified personal residence trust. This type of trust can remove the value of your primary or vacation residence from your estate. It’s a beneficial tool if you believe your residence will probably appreciate in value.
Qualified terminable interest property trusts. This trust may be use to leave income for your spouse, as well as specific beneficiaries after your spouse passes.
Irrevocable life insurance trusts. With an irrevocable life insurance trust, you may be able to remove the value of your life insurance from your estate. This type of trust can help you reduce estate taxes, pay estate costs, and leave your beneficiaries with a source of tax-free income.
These are only a handful of the many different types of trusts that can help you protect your property and assets, reduce taxes, and ensure your loved ones are cared for. There are many more complex trusts that can serve a variety of purposes.
Talk to an estate planning if you are considering setting up a trust. Your attorney can help you determine the best trust for your unique situation and needs, and work with you to ensure the trust is set up in a way that ensures your goals are met and your assets and family protected.
About the Author:
Christopher Q. Wintter is the founder of Wintter & Associates, P.A. and a board-certified expert in Trust and Estate matters by the Florida Bar. With more than 24 years’ experience as a practicing attorney, he also serves as an instructor and faculty member for the National Institute of Trial Advocacy (NITA)—the nation’s leading provider of legal advocacy skills training to practicing attorneys—and has earned the AV® Preeminent™ rating with LexisNexis Martindale Hubbell. He was also selected for inclusion in Florida Super Lawyers for 2011 and 2012 in Estate and Trust Litigation.