Many people perceive trusts as a complex subject better left to their attorney. As a matter of fact, they often think trusts are available only to the wealthy. However, when stripped of all the “bells and whistles,” a trust can be viewed as simply a written contract between one individual, the trustee (or grantor), and another individual called a beneficiary(ies). The trustee’s job is to see that the terms of the trust are faithfully carried out according to the grantor’s wishes. The word “grantor” is another term for the person who sets up the trust and decides (with the help of his or her attorney) what the terms of the trust are going to be.
Once you progress past these fundamental trust “building blocks,” you begin to see that trusts are very powerful tools designed to help individuals handle a variety of family and tax-related issues. The following list describes a few types of trusts that can be put to work for you, if your situation so warrants.
“A/B” Marital Trusts: Marital trusts are often one of the first steps recommended by estate planners because they may potentially save a great deal of money in estate taxes. A marital trust is utilized when a surviving spouse may be incapable of making investment decisions in the future. Marital trusts work by integrating the marital deduction on the “A” side of the trust with what is known as the unified credit on the “B” side of the trust. The “B” trust enables you to take advantage of your estate tax credit while removing investment decisions from your spouse and children (or other beneficiaries). The bottom line—If you have a significant estate that you wish to pass to your family, ask your attorney whether an A/B marital trust will work for you.
Revocable “Living” Trust: A living trust is another estate planning trust that permits you to retain control over your property during your lifetime and avoid probate when you die. Many individuals with firsthand experience of the probate process have sworn to never let their estate pass through probate. A revocable living trust allows you to avoid the expense, delay, and publicity of probate and can be combined with an estate tax-saving A/B marital trust.
Irrevocable Life Insurance Trust (ILIT): This is a specialized type of estate planning trust that helps your executor pay your estate tax bill without having to sell estate assets. A life insurance trust is a method of making sure your family receives your assets when you die.
Charitable Remainder Trust (CRT): Charitable remainder trusts may be one of the best-kept “secrets” in the financial world. When structured properly, contributions of cash or property to the trust allow you to: 1) take up-front income tax deductions on your 1040 tax form for the remainder that will ultimately pass to the charity of your choice; 2) receive a current tax-free income stream from the trust; and 3) have all of the property in the trust bypass your estate for estate tax purposes.
Using a trust can be an excellent method of accomplishing your long-term goals for your family and loved ones. I would be happy to coordinate some of these details with your legal professional. Using the team approach can help simplify the process, and provide even more benefits to you and your family.