Estate Planning Trusts

Do you know what estate planning trusts do and how they will benefit you? As estate planning has become more important in the lives of many people, understanding trust and what they can do is vital to creating a plan.

Before estate planning trusts were created, individuals would create wills that gave their assets to family members or friends after they pass away. However, due to estate taxes or other issues related to estate property, this plan was not perfect. Estate planning trusts were created to fix this situation.

Estate planning trusts work based on the idea of a trust estate. These estate property trusts allow you to plan your estate property and pass it over to someone else at a future date, which may be contingent upon the passing of another person.

What is a Living Trust?

This trust allows an individual to transfer assets into it during their lifetime and that trust becomes effective immediately. Assets may include real estate, personal property, and bank accounts. When you die, those assets go directly to whoever is named as beneficiary(ies) or distributed according to instructions contained within the document itself (if no beneficiaries are named).

What is a Credit Shelter Trust?

This type of trust lets married couples protect estate assets from estate taxes. For trusts created before 2009, only $1 million in assets could be shielded from estate taxes. For trusts created after January 1, 2010, there is no limit and the value of the property sheltered by this type of trusts is based on what you paid for it (i.e., market value).

What is Marital Trust?

This type of trust is one that provides for the surviving spouse when death occurs in a marriage or civil union. This type of trust  sets out how the surviving spouse is to be cared for and this usually includes an allowance for food, lodging, education, transportation, etc. The trusts also allows for children of either spouse to be considered as primary beneficiaries.

What is Special Needs Trust?

This type of trust helps provide funds for individuals who have disabilities and need special care throughout their entire life. These trusts are usually set up by family members, friends, financial planners, attorneys or others who care about the disabled person. Trusts can be used to pay for food, shelter, clothing, medical bills, entertainment, and anything specific that will benefit them. The trustee holds legal title to assets placed in this specific kind of account but only controls the assets according to instructions laid out in the document itself (usually at least annually).

What is Irrevocable Trust?

This type of estate planning trust cannot be changed after they have been signed and filed in the state where you reside.

What is a Charitable Trust?

This estate planning must include a provision for charitable giving during life or at death. These trusts allow an estate owner to give assets away while living and help reduce estate tax liability. Upon death, charitable trusts may payout over time (periodic payments) or transfer the entire balance into a charity upon final payment of estate taxes.

What is a Testamentary Trust?

This estate planning tool requires that after you die, your trustee will transfer assets into this trust named specifically in your will. Assets are not transferred until after all estate matters are resolved, including the payment of debts and expenses, giving the distribution of estate proceeds to beneficiaries, and distribution of assets held in trust.

What is a General Trust?

This estate planning trust is most often used for business matters and can be limited to a specific purpose. It is very flexible in nature with many options available to the estate owner.

What is Limited Purpose Trust?

This estate planning tool is the most flexible trust option available. It includes unlimited assets to be held in trust but also allows estate assets to be distributed for estate tax purposes.

The estate owner may give up complete control of assets, or they may retain partial control while placing other assets in the name of the trustee. Assets are typically used for estate tax purposes only and the estate owner may be able to redeem or withdraw these assets upon returning them into their estate.

What is Qualified Terminal Interest Property Trust (QTIP)?

This estate planning trust reduces estate tax liability in a significant way. It is intended to benefit a surviving spouse who is more likely to spend income rather than save estate assets. It is typically used when the estate’s value is greater than $5 million.

What is a QMA Trust?

This estate planning trust allows estate owners to make gifts while still alive. Assets are transferred immediately into this type of estate planning tool and income can be distributed or reinvested by the trustee accordingly. The estate owner retains the right to change the beneficiaries, terminate distributions altogether, or transfer additional assets in excess of $14,000 annually. This estate planning tool helps reduce estate taxes and provides greater liquidity than traditional trust options.

This estate planning trust is often used in second marriages to protect one spouse’s assets from the other spouse should the marriage fail or end due to death or divorce. Assets can be distributed into this estate planning tool at any time, fees are required for the annual administration of the estate planning trust, and funds must be distributed after estate taxes are paid. A qualified attorney or estate planner can help you decide which estate planning tool is best for your situation.

Each estate planning tool has its own advantages and disadvantages so it is important to select the estate planning trust that will work best for your estate’s specific needs. An estate planning attorney can evaluate which estate planning tool will work best for you based on your estate plan as a whole.

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