Proper estate planning often requires a careful preparation of one or more Trusts.
A trust is an agreement in which one person agrees to manage property for the benefit of another person. The property that the trustee manages can be real, tangible, or intangible property. A trust generally involves three separate people:
The “grantor” is the person who creates the trust and is usually the person who deposits the money or other assets into the trust. (Others can sometimes also make contributions to a trust. They are often called “donors”.)
The “trustee” is the person who holds legal title to the trust property but is required to hold the property for the benefit of others.
The “beneficiaries” are the people or entities who are to benefit from the trust. A trustee has a fiduciary duty to make decisions regarding the trust property in the best interests of the trust beneficiaries, and can be held liable for any misuse or mismanagement of trust property. The trust beneficiaries hold equitable title to the trust property.
A trust can be revocable or irrevocable. Most of the time, a revocable trust is created for convenience and ease of management of assets and not for tax planning purposes. A revocable trust may be changed or terminated by the grantor at any time and for any reason. Most of the time, an irrevocable trust is used either for tax planning or to ensure that assets are properly and safely managed. Irrevocable trusts, once established, cannot be terminated or altered by the grantor for any reason.
Trusts may be created by someone while he or she is alive. These are called “inter vivos” trusts. Alternatively, a trust may be created by a grantor’s will, in which case it is a “testamentary trust” and it will not come into effect until the grantor’s death.
For example, most families with young children will want a trust created for the care of the children in the event that both parents die. It is also very common for an estate plan to leverage the marital deduction by using a credit shelter bypass trust. Other families, especially blended families, wish to direct the ultimate beneficiaries of their assets by using a QTIP trust. In addition, families often use trusts to protect the proceeds of a life insurance policy from taxation. (Many people do not realize that life insurance proceeds are included in calculating the value of an estate for estate tax purposes. Families with young children often have large life insurance policies to protect their families, but those policies cause their estate to be taxed.) A life insurance trust can avoid that tax. For more information about life insurance trusts, click here. We are fully equipped to create an appropriate revocable or irrevocable trust for your family.
There are many different types of trusts that can be used in your estate plan, including:
- Irrevocable Life Insurance Trusts (“ILITs”)
- Support Trusts
- Charitable Trusts
- Spendthrift Trusts
- “Honorary Trusts”, such as pet trusts and cemetery trusts
- Crummey Trusts
- Dynasty Trusts
- Marital Trusts (also known as a “Spousal” trust or an “A” Trust)
- Family Trusts (also known as a “Credit Shelter” trust or a “Bypass” trust or a “B” Trust)
- Generation Skipping Trusts (“GST”)
- Grantor Retained Annuity Trusts (“GRAT”)
- Intentionally Defective Grantor Trusts (“IDGT”)
- Qualified Domestic Trusts (“QDOT”)
- Qualified Personal Residence Trusts (“QPRT”)
- Qualified Terminable Interest Trusts (“QTIP”)
- Special Needs Trusts (“SNT”)
- Testamentary Trusts
- Trusts for Minors