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Estate Planning
Using Trusts to Benefit Yourself and Others
The use of trusts can offer incredible opportunities for those individuals willing to spend a little time and money in planning for the future. In fact, the benefits in tax savings and control of your money and income stream in the future significantly outweigh the costs of setting up a trust.
There is an infinite variety of trusts that can be formed to benefit you, as well as family and even non-family members. As an aside, it is important to remember that every individual's personal situation is different and a trust can often times be tailored to meet any person's goals and objectives. The following are brief descriptions of basic types of trusts:
Charitable Remainder Trust. This is an irrevocable trust for the life of the donor, or for a term of years in which the donor reserves an income stream based on a stated percentage of the principle transferred into the trust. At the death of the donor, or at the end of the stated term, the named charity receives the remaining principle or accrued income. A CRT makes sense when the donor is faced with a large capital gains tax upon the sale of an appreciated asset.
Grantor Retained Interest Trust. This is an irrevocable trust created for the right to receive an annual payment of a fixed percentage of the fair market value of the trust assets. A GRAT, GRIT, or GRUT is particularly useful when an individual is single and has a substantial estate upon which federal estate taxes are certain to be due at death. A trust such as this will also protect assets from a will contest, public scrutiny, probate, or an election against a will if the grantor survives the trust term.
Irrevocable Life Insurance Trust. This is a form of trust designed to remove life insurance death benefits from the estate of the deceased insured individual, resulting in reducing or eliminating estate taxes, shifting the tax burden to a lower generation, and also creating greater liquidity in the estate and payment of taxes. These trusts have an incredible ability to leverage dollars now and create wealth for the family in the future.
Education Trust. This type of trust is designed to combine all of the advantages and few of the disadvantages of other forms of trust providing for children or grandchildren and their needs for college, University, or other post high school educational needs. Whenever a grantor has children, grandchildren or other young relatives whom he or she wishes to benefit with specific educational gifts, such an individual can avail themselves to this form of trust.
Supplemental Needs Trust. This type of irrevocable trust is designed to supplement an elderly individual, which will not jeopardize or reduce, and can in fact assist, in a beneficiary's eligibility for Medicaid or other Federal and State support.
Qualified Personal Residence Trust. This is an irrevocable trust implemented for tax purposes, into which the grantor places his or her primary residence, and/or possibly a second home such as a summer or winter residence, for a term of years. The grantor retains the use of the property for the term of years specified in the trust and, at the end of the term, the remainder beneficiaries own the property at the appraised value the property held when placed in the trust at the very beginning.
Off Shore Trusts. This is an irrevocable trust made with the trustee being a foreign national, generally a bank trust department. It is "discretionary" in that the grantor has no absolute right to either income or principle. This type of trust should be used when the grantor wants additional asset protection, has already leveraged through domestic trusts as much estate tax avoidance as possible, and wishes to reduce or eliminate additional estate tax liability.
Revocable Living Trusts. These types of trusts are very common and will never eliminate income or estate taxes. However, they are an excellent tool to provide a mechanism for an individual who wants to avoid probate and may be concerned about managing their affairs and assets in the event they become disabled or incapacitated.
In summary, the above descriptions are extremely general in nature and are for the purpose of exemplifying the incredible variety of trusts and the opportunity individuals have to significant benefits. If any of the trusts described above appear to strike an accord with you, it may be to your advantage to investigate implementing a trust for your benefit or for the benefit of others.
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