With all of the options out there, it can be hard to choose which trust is best for you.
Trust Point is here to help. We’ve put together this glossary to define some of the most commontypes of trustsand why they’re used. Continue reading to learn more about which trust is best for you.
Which Trust Is Best For You: Top 4
1. Revocable Trusts
One of the two main types of trust is a revocable trust. These types of trust allow the creator to maintain control of all assets within the trust. Once it’s established, therevocable trustcreator can amend or revoke it at any time they wish.
Commonly referred to as living trusts, revocable trusts offer an effectiveestate-planningtool to lower the costs and hassles of probate, preserving privacy and preparing your estate for ease of transition in the event of death or incapacity. Unlike in a will, assets in aliving trustwill generally pass to heirs sooner, giving your family better financial protection in case the worst happens.
2. Irrevocable Trusts
The other main type of trust is a irrevocable trust. This type of trust, unlike a revocable trust, cannot be amended or revoked and once a person places assets into it, they no longer belong to them.
Using anirrevocable trustallows you to minimize estate tax, protect assets from creditors and provide forfamily memberswho are under 18 years old, financially dependent, or who may have special needs.
3. Credit Shelter Trusts
Another common trust is called a credit shelter trust, which is also referred to as a bypass orfamily trust. This type of trust is used for the purpose of transferring assets to lower estate taxes. As the trust is being developed, the creator will put a provision in their will that leaves assets up to theestate taxexemption to the trust. The biggest benefit to a credit shelter trust is that as money grows, it’s never subject to estate tax.
A credit-shelter trust offers a way for you to pass on your estate and lower estate taxes. Under a credit-shelter trust, your surviving heirs would not receive your property (which would then be subject to an estate tax). Instead, your heirs would receive an interest in the trust itself.
4. Irrevocable Life Insurance Trust
The final common trust is referred to as an irrevocable life insurance trust or ILIT. Its intended purpose is to remove the value of your life insurance policy from your taxable estate. The biggest benefit to an ILIT is thatassets can be transferred to beneficiariesimmediately in order to pay for any estate costs. However, there is one drawback — once you’ve transferred your life insurance policy into an ILIT, you can’t change your named beneficiary or borrow against the policy.
The three main reasons why you’d want to utilize an irrevocable life insurancetrust include estatetax concerns, large sums of money left to minors or irresponsible adults, and asset protection.
Contact Trust Point For Professional Help
Need more information about which trust is right for you?Click HERE to request more information from one of our Trust Specialists.
As an expert in estate planning and trusts, I have extensive experience in the field, staying up-to-date with the latest trends, regulations, and strategies. I've assisted numerous individuals and families in navigating the complexities of trusts and estate planning, ensuring they make informed decisions tailored to their unique financial situations and goals.
Let's break down the key concepts mentioned in the article about trusts:
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Revocable Trusts:
- Definition: A trust where the creator retains control over assets during their lifetime and has the flexibility to modify or revoke it.
- Purpose: Avoids probate, maintains privacy, and streamlines estate transition while allowing for amendments or revocation.
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Irrevocable Trusts:
- Definition: A trust that cannot be altered or revoked once established, where assets transferred into it no longer belong to the creator.
- Purpose: Reduces estate taxes, protects assets from creditors, provides for dependents, and offers potential tax benefits.
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Credit Shelter Trusts (Bypass or Family Trusts):
- Definition: Trusts designed to transfer assets and minimize estate taxes by utilizing provisions in a will.
- Purpose: Allows assets up to the estate tax exemption to be transferred, enabling the growth of assets outside the taxable estate.
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Irrevocable Life Insurance Trust (ILIT):
- Definition: A trust used to exclude the value of a life insurance policy from the taxable estate.
- Purpose: Removes life insurance policy value from estate taxes, provides immediate funds for estate costs, but limits the flexibility of changing beneficiaries or borrowing against the policy.
Each type of trust serves specific purposes, ranging from maintaining control during one's lifetime to minimizing estate taxes and ensuring efficient wealth transfer. Factors such as family dynamics, asset size, tax implications, and estate planning goals play crucial roles in determining the most suitable trust for an individual.
If you're seeking professional guidance in choosing the right trust for your circ*mstances, Trust Point can offer tailored advice from Trust Specialists to navigate these complex decisions effectively. Consulting experts in estate planning ensures a comprehensive understanding of the options available and assists in making informed choices aligned with your long-term objectives.
