Considering the myriad types of trusts available, creating an estate plan that works for your individual circumstances can seem daunting. However, that’s what we, as estate planning attorneys, do every day. We know the applicable laws, we learn about your own desires, concerns, and objectives, and we will design a plan which addresses your specific situation.
Here’s a look at the basics of ten different types of trusts to help provide you a general understanding of what trusts can do and how they are used. There will not be a quiz at the end. All you need to do when we meet is share your goals and insight into your family and financial situation, your concerns and your objectives, then we’ll design a plan that incorporates the best documents for your particular situation.
- Bypass Trusts. Commonly referred to as Credit Shelter Trust, Family Trust, or B Trust, Bypass Trusts do just that: bypass the surviving spouse’s estate to take advantage of tax exclusions, help deal with the issues associated with blended families, and provide significant asset protection.
- Charitable Lead Trusts. CLTs are split interest trusts which provide a stream of income to a charity of your choice for a period of years or a lifetime. Whatever’s left goes to you or your loved ones. It is a very effective tool to avoid significant estate taxes and transfer wealth to the next generation(s).
- Charitable Remainder Trusts. CRTs are split interest trusts which provide a stream of income to you for a period of years or a lifetime and the remainder goes to the charity of your choice. The use of a CRT can reduce or eliminate estate taxes, and the wealth transferred to the charity can often be replaced through the effective use of life insurance.
- Special Needs Trusts. SNTs allow you to provide benefits to someone with special needs without disqualifying them for governmental benefits. Federal laws allow special needs beneficiaries to obtain benefits from a carefully crafted trust without defeating eligibility for government benefits. These types of trusts can be very important if you have family members who have special needs.
- Generation-Skipping Trusts. GST Trusts allow you to distribute your assets to your grandchildren, or even to later generations, without paying the generation-skipping tax, that can otherwise devastate the part of your estate going to future generations beyond your children. In Florida, we can protect assets for future generations for up to 360 years.
- Grantor Retained Annuity Trusts. GRATs are irrevocable trusts which are used to make large financial gifts to family members while limiting estate and gift taxes. Sometimes we can create a zero estate tax, regardless of the level of wealth, through the use of GRATs.
- Irrevocable Life Insurance Trusts. ILITs are designed to exclude life insurance proceeds from the deceased’s estate for tax purposes. However, proceeds are still available to provide liquidity to pay taxes, equalize inheritances, fund buy-sell agreements, or provide an inheritance. When utilizing a CRT, the wealth replacement life insurance is often placed in an ILIT. ILITs also provide very substantial asset protection for the beneficiaries.
- Marital Trusts. Marital Trusts are designed to provide asset protection and financial benefits to a surviving spouse. Trust assets are included in his or her estate for tax purposes.
- Qualified Terminable Interest Property Trusts. QTIPs initially provide income to a surviving spouse and, upon his or her death, the remaining assets are distributed to other named beneficiaries. These types of trusts are commonly used in second marriage situations and to maximize estate and generation-skipping tax exemptions and tax planning flexibility. Often, the bypass trusts referred to above are structured as QTIP trusts.
- Testamentary Trusts. Testamentary Trusts are created in a will or revocable living trust. These types of trusts are created upon an individual’s death and are commonly used to provide for a beneficiary. They are commonly used when a beneficiary is too young, has medical or drug issues, or may be a spendthrift. Trusts also provide asset protection from lawsuits brought against the beneficiary.
There are many other types of trusts available. We’ll help you select which types of trusts, if any, are a good fit for you. Call today. We’re waiting to help you design your estate plan to meet your individual needs and desires.