Considering the myriad of trusts available, creating the right estate plan can seem daunting. However, that is what we, as estate planning attorneys, do every day. We know the laws and will design a plan which addresses your specific situation. Here is a look at the basics of ten different types of trusts to provide you with a general understanding of the options available.
There will not be a quiz at the end. When we meet, all you need to do is be prepared to share your goals and insight into your family and financial situation. From there, we will design a plan that incorporates the best documents for your situation.
1. Bypass Trust
Commonly referred to as a credit shelter trust, family trust, or B trust, a bypass trust contains a portion of a deceased spouse’s accounts and property and uses the deceased spouse’s lifetime exclusion amount to reduce or eliminate estate tax. Because the estate tax is calculated when the first spouse dies, the second spouse bypasses this trust for estate tax purposes.
2. Charitable Lead Trust
A charitable lead trust provides a stream of income to a charity of your choice for a period of years or a lifetime. At the completion of the period of years, or at death, the rest goes to you or your loved ones with significant tax savings.
3. Charitable Remainder Trust
A charitable remainder trust provides a stream of income to you for a period of years or a lifetime. Then, it gives the rest to the charity of your choice with significant tax savings once the period of years or death has occurred.
4. Special Needs Trust
A special needs trust allows you to provide money or property for the benefit of someone with special needs without disqualifying them from receiving governmental benefits. Federal laws allow special needs beneficiaries to receive certain types of benefits from a carefully crafted trust without defeating eligibility for government benefits.
5. Generation-Skipping Trust
A generation-skipping trust allows you to distribute your money and property to your grandchildren, or even to later generations, without taxation, by using your lifetime exemption to offset any tax that could be due.
6. Grantor Retained Annuity Trust
A grantor retained annuity trust is an irrevocable trust which provides you with an annuity for a specific amount of time based on the value of the property in the trust. When the annuity period ends, you transfer the remaining money and property to those you named. You can use this trust to make large financial gifts of accounts or property expected to grow faster than the annuity rate paid back to you.
7. Irrevocable Life Insurance Trust
An irrevocable life insurance trust holds high-value policies, excluding proceeds from estate taxes while providing funds for taxes, inheritances, and agreements.
8. Marital Trust
A marital trust protects accounts and property for the surviving spouse’s benefit. It also qualifies for the unlimited marital deduction. These accounts and pieces of property are excluded from estate tax at the first spouse’s death but are included in his or her estate for tax purposes.
9. Qualified Terminable Interest Property Trust
A qualified terminable interest property trust initially provides income to the surviving spouse. When the surviving spouse dies, the trust distributes the remaining money and property to other named beneficiaries. However, the trust still qualifies for the unlimited marital deduction. People commonly use these trusts in second marriages and to maximize estate and generation-skipping tax exemptions and planning flexibility.
10. Testamentary Trust
A testamentary trust is a trust created in a will. This type of trust is created upon the individual’s death. It safeguards a beneficiary’s money and property instead of transferring it directly, especially if they’re young, ill, or unable to manage funds.
The trust can also provide asset protection from lawsuits, or a claim by a divorcing spouse brought against the beneficiary. Unlike a revocable living trust or an irrevocable trust, where property should be transferred into a trust during the trustmaker’s lifetime to work property and avoid probate, testamentary trusts require the sometimes lengthy and expensive probate process before the trust is created.
Discuss Your Estate Plan Options With Our Modesto Estate Planning Lawyers
There are many different types of trusts available. We know estate planning can feel overwhelming. We will help you select which trusts, if any, are a good fit for you.
Call us today at (209) 876-8886 to schedule your in-person or virtual appointment. You can also contact us online. We are waiting to hear from you.