Trusts come in all shapes and sizes and figuring out which, if any, trust would be helpful to you requires at least a basic understanding of several different trusts drafted by attorneys.
If you’ve ever walked into an estate planner’s office, it’s likely you were bombarded with a wide variety of legal jargon. It can often be intimidating when confronted with the choices and legal consequences of each type of trust and some people are afraid to ask questions, or simply lack the understanding to know which questions to ask in the first place. The below list is intended to help you avoid some of this confusion by giving you a brief overview (in very basic terms) of the trusts you are most likely to encounter in your meeting with an experienced estate planner.
Revocable Trusts – These are trusts the settlor (the person who creates the trust) can easily dissolve. If circumstances change, assets in the trust can be removed and a different trust can be created. Commonly, these types of trusts are used to avoid probate.
Irrevocable Trusts – Unlike revocable trusts, these trusts generally cannot be changed once created and for that reason require much more careful planning. The benefit often being that these trusts may offer more estate tax benefits than revocable trusts. It is also common for clients to have to weigh the tradeoff between control and wealth preservation when creating these types of trusts. One example of a popular irrevocable trust is an irrevocable life insurance trust, which is used to reduce the size of your estate for tax purposes.
Credit Shelter Trusts – While not as useful as they used to be, these trusts still offer a good way to avoid some estate taxes (especially if you live in a state like Massachusetts that may impose an estate tax on those with over $1 million is assets). Assets in this type of trust are held for the benefit of children normally, but a spouse can still use those assets while he or she is alive.
Generation-skipping Trusts – These trusts are created for the benefit of grandchildren instead of children. This is normally done for estate tax purposes, but the trusts need to be set up by experts to avoid other tax issues.
Qualified Personal Residence Trusts – These very specific trusts are a way to pass a home on to heirs while minimizing taxes on the home.
If you’re interested in discussing which, if any, of these trusts may best fit your estate planning needs then please feel free to contact an experienced estate planner at Simmons & Schiavo by calling (781) 397-1700 or visit our contact us webpage today.
Reference: Motley Fool (Sept. 18, 2016) “Navigating the World of Trust Funds: Your Quick Guide.”