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Trusts Trusts What
is a trust? A trust is a legal entity created
by a grantor for the benefit of designated beneficiaries. A trust
can be established by way of an expressed contract, where it will
either be revocable or irrevocable, or by implication. By making
the trust revocable, the creator retains the right to receive back
assets transferred to the trustee.
However, this power causes the assets in the trust to be
included in the creator's taxable estate thus creating potential
federal and state tax liability. Trusts can either be effective
during the lifetime of the creator or come into effect at the death
of the creator. What
are the common forms of irrevocable trusts?  Common forms of irrevocable trusts
include Irrevocable Life Insurance Trust ("ILT"), Qualified
Terminal Interest Property Trust ("QTIP"), Charitable
Remainder Trust ("CRT"), Charitable Remainder Annuity
Trust ("CRAT"), Charitable Remainder Unitrust ("CRUT"),
Charitable Lead Trust (“CLT”), Grantor Retained Annuity
Trust ("GRAT"), Grantor Retained Unitrust ("GRUT"),
and Grantor Retained Income Trust ("GRIT"). What
is an Irrevocable Life Insurance Trust? An Irrevocable Life Insurance
Trust ("ILIT") is an irrevocable trust created to purchase
and own life insurance policies on your life with the proceeds going
directly to your beneficiaries at your death. The ILIT can also
be structured to buy assets from or lend money to the executor of
your estate thereby providing funds when needed. Life insurance
policies owned by either you or your spouse may be transferred to
an ILIT. If you transfer a life insurance policy to an ILIT for
valuable consideration, or if the transfer is by gift and you survive
for three years after such gift, the insurance proceeds will not
be included in your estate for estate tax purposes. What
is a QTIP Trust? QTIP is short for “Qualified
Terminable Interest Property”.
Property transferred into a QTIP Trust for the benefit of
the surviving spouse qualifies for the marital deduction thus resulting
in no gift or estate tax liability upon the death of the first spouse. How do charitable trusts work? Generally, property is transferred
to a trust that qualifies as a charitable trust allowing the transferor
the benefit and use of the property during his life.
Upon the transferor’s death, the property goes to the
charity and the transferor’s estate receives a deduction for
estate and gift tax purposes. Depending on the type of trust selected,
the transferor may either receive fixed payments or the payments
can fluctuate based on the fair market value of the transferred
property. May
a trust be used to avoid probate or provide for incapacity?
Since a trust is a contract,
it is not subject to the rules governing the administration of an
estate. As a result, upon the death of the party that created the
trust, there is no requirement that an accounting or other document
be filed with the Clerk of Superior Court in the county where the
decedent died, unless the terms of the trust require otherwise.
Often revocable trusts or "Living
Trusts" are used as a method to avoid the costs of probate
or to provide for future disability. By making the trust revocable,
the creator retains the right to receive back assets transferred
to the trustee during the creator's life. At death the property
goes immediately to the trust beneficiaries without being subject
to the time, cost, and expense of probate. However, this power to
revoke the trust causes the assets in the trust to be included in
the creator's taxable estate thus creating potential federal and
state tax liability. The trust may be funded at the time of formation
or may be funded in stages. Upon your subsequent incapacity, the
trustee may step in and manage your assets providing a hassle free
transition without the need of court proceedings. Is
a trust difficult to form?
No, a trust is not difficult
to form. However, you should consult with your attorney or tax advisor
regarding the goals you wish to accomplish, the purpose of the trust,
the types of trusts, tax implications, and the transfer of property
to the trust.
For assistance with creating a trust
or estate plan, contact our firm for an appointment
or Email David
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