Trusts

In simple terms, a trust is a book of instructions wherein you tell your people what to do and when.  A trust can be an important part of your estate plan because it allows to you to avoid probate, minimize taxes, maintain control and ultimately provide for yourself and your heirs.

Revocable Living Trust

Perhaps the most common type of trust is the revocable living trust.  As the name implies, revocable trusts are fully revocable at any time. Assets transferred (or ‘funded’) to a revocable trust remain within your control and you can simply revoke the trust and have the assets returned.

With a Revocable Living Trust-based estate plan you can:

  • Control your property while you are alive
  • Take care of you and your loved ones in the event of disability
  • Pass your property to your heirs when and how you want while maintaining privacy
  • Ensure that you and your spouse have sufficient assets to maintain your standard of living now and in retirement.
  • Maintain maximum control and flexibility during your lifetime.
  • Provide for you in the event you become disabled.
  • Simplify administration as much as possible upon your death or disability (avoiding probate & guardianship).
  • Avoid having your private matters being made public unnecessarily.

Irrevocable Life Insurance Trust

Life insurance is a unique asset in that it serves numerous diverse functions in a tax-favored environment. Life insurance proceeds are received income tax-free and, if properly owned by an Irrevocable Life Insurance Trust, life insurance proceeds can also be received free of estate tax.

An Irrevocable Life Insurance Trust (ILIT) is one of the most popular wealth planning devices. It is a trust designed to own a life insurance policy, usually on the lives of you and your spouse. You gift funds to the trust periodically, and the trustee uses the funds to pay premiums on the life insurance policy. The trust is designed to produce benefits for your family.

  • Make current gifts to family members.
  • Accumulate assets outside the client’s taxable estate.
  • Protect assets from claims of creditors.
  • Avoid income tax on the accumulation of funds.
  • Avoid estate tax upon the distribution of funds to the family.
  • Create a source of liquidity to cover estate taxes or expenses.

Retirement Trust

IRAs and qualified retirement plans create a unique planning challenge because these assets are subject to income tax when received by the beneficiary. One way to help reduce the tax impact is to structure these accounts to provide the longest term payout possible; deferring income tax as long as possible minimizes the overall tax impact and allows the account to grow tax-free. To achieve this maximum ‘stretch-out,' you should name individuals who are young (e.g., children or grandchildren) as the designated beneficiary of your tax-qualified plans and, significantly, the beneficiary should take only those minimum distributions that are required by law. The younger the beneficiary, the smaller these required minimum distributions. By naming a trust as the beneficiary of your tax-qualified plans, you can ensure that the beneficiary defers the income and that these assets remain protected from creditors or a former son or daughter-in-law. We recommend that this trust

To achieve this maximum ‘stretch-out,' you should name individuals who are young (e.g., children or grandchildren) as the designated beneficiary of your tax-qualified plans and, significantly, the beneficiary should take only those minimum distributions that are required by law. The younger the beneficiary, the smaller these required minimum distributions. By naming a trust as the beneficiary of your tax-qualified plans, you can ensure that the beneficiary defers the income and that these assets remain protected from creditors or a former son or daughter-in-law.

The Retirement Trust is separate from your revocable living trust and other trusts to ensure that it accomplishes your objectives while also ensuring the maximum tax deferral permitted under the law. Either the trust can either pay out the required minimum distribution to the beneficiary, or it can accumulate these distributions and payout trust assets under the standard you set in advance (e.g., for higher education, etc.).

Frequently Asked Questions

What is a trust?

A trust is a written agreement that details how the property held in the trust will be managed and distributed.  In simple terms, a trust is a book of instructions wherein you tell your people what to do and when.  A trust can be an important part of your estate plan because it allows to you to avoid probate, minimize taxes, maintain control and ultimately provide for yourself and your family.

Who can serve as a Trustee?

The maker of the trust can choose who they want to act as a trustee.  Typically, the maker of the trust will serve as the initial trustee and then appoint someone or entity to serve as the successor trustee.

Can I create a trust and avoid probate of my assets?

Yes, property held in a trust is not subject to probate, which is a significant benefit of a trust.  A trust can allow you to control and use the trust property during your lifetime and then dictate how the property is utilized and distributed upon your death.

What is the difference between a revocable and irrevocable trust?

A revocable trust can be altered, changed, modified or revoked, so remain in control of the trust during your lifetime as well as the assets that put into the trust.  You can transfer assets into the trust or take assets out.  You can also serve as the trustee and beneficiary of the trust. You have full control.

In contrast, an irrevocable trust cannot be altered, changed, modified or revoked.  Also, the assets in an irrevocable trust are transferred out your estate into the name of the trust.   Most often you can’t be in control of these assets.  However, an irrevocable trust does offer increased asset protection from creditors.

Do I need a Trust?

It all depends on your particular situation and estate planning goals.  A trust is an excellent tool to avoid the probate process, which can eliminate the costs and delays associated with dealing with probate.  Also, a trust provides structure to the distributions of your assets by providing instructions about who receives the assets and when they receive them.

Can I write my trust document or have someone other than an attorney write the document?

Yes, a trust does not have to be prepared by an attorney.

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