There are many types of trusts, capable of helping you accomplish a variety of goals. However, when most people think about trusts, a Revocable Living Trust is the one they have in mind.
A Revocable Living Trust allows you to maintain complete control over your assets while you are alive and after you have passed away. You don’t have to transfer your assets to the trust all at once, you can do so over time and even add to the trust as you acquire new assets.
Other benefits of a Revocable Living Trust include:
- Avoiding probate. The probate process is time-consuming, needlessly expensive and exposes your financial affairs to public scrutiny
- It can be changed over time to compensate for changes in your financial and family situation
- Basic wills can lead to disagreements among family members. A Revocable Living Trust can help eliminate challenges to the will and ensure beneficiaries receive what you have intended
- It can allow for separation of assets. This is often useful for married couples looking to protect assets and minimize taxes
- It allows for ongoing financial management. As your wealth accumulates, so too will assets in the trust
Trusts that can help you meet specific estate planning goals
As we have mentioned, there are a wide range of trusts. Here are some that can be used to achieve specific planning goals.
Generation-Skipping Trust (GST)
Let’s say your son has remarried and you’re worried that his second wife might not pass his inheritance to the children from your son’s first marriage–that is, your grandchildren. Or maybe one of your children is not responsible enough to handle an inheritance on his or her own and you want to make sure your grandchildren will receive a portion of your assets. With a Generation-Skipping Trust, the assets put into the trust will be transferred to your grandchildren when the GST goes into effect. A GST does not necessarily disinherit your children. The trust can be structured so that your children can draw on the income/earnings from the trust while your grandchildren stand to inherit the balance of the trust.
Qualified Terminable Interest Property Trust (QTIP)
A QTIP is an excellent tool for blended families. It allows you to pass earnings from trust assets to one person while the assets themselves remain in the trust for the benefit of another person. Why is this useful? Well, what if you and your spouse both have children from previous marriages? You want to make sure your spouse is provided for after you pass away, but you also want to ensure that the children from your spouse’s first marriage won’t receive most or all of your estate. With a QTIP, your spouse can access the income from the trust while your children will inherit as much of the trust’s assets as you see fit. Or what if you’re worried that your spouse will remarry and the new spouse takes marital ownership of your estate? Again, the QTIP allows you to provide for your spouse and your children.
Typically, the beneficiaries named in your IRA will receive the IRA’s money when you pass away. However, if one of your beneficiaries is, for example, a minor child, an IRA Trust can allow you to have the payments distributed over time after your child becomes an adult. An IRA trust can also be structured like a QTIP, allowing you to support a surviving spouse with trust income while leaving the assets of the trust to your children or other beneficiaries.
Special Needs Trust
If you have a loved one with special needs, a Special Needs Trust allows you to create a fund to augment services and care not provided by government assistance programs such as Supplemental Security Income (SSI) while at the same time maintaining eligibility for these programs. The trust can include money for travel expenses, entertainment, wheelchair-accessible transportation, education, advanced dental and medical care, and more. In essence, a Special Needs Trust can provide for services capable of dramatically improving the quality of life of your loved one with special needs.
Credit Shelter Trust (CST)
This trust is an excellent way for high-net-worth married couples to minimize or avoid estate taxes. How? Both spouses could have a provision in their wills or trusts setting up the CST. When the first spouse passes away, the CST kicks in and is funded up to the state and/or federal estate tax exemption amount. The assets in the CST are no longer part of the taxable estate. Oftentimes, the surviving spouse is the beneficiary of the CST. When the surviving spouse dies, the funds in the Credit Shelter Trust can pass to heirs free of estate taxes.
Contact us today to discuss additional estate planning tools and strategies that can help you achieve your particular goals.