Estate Planning: Trusts
Trusts, which are often created as part of your estate planning process, are legal agreements that set rules for property held for your beneficiaries. There are many different types of trusts, all with specific purposes. The most common type of trust is a revocable living trust. Many of our estate planning clients need only a revocable living trust and supporting estate planning documents (such as a pourover will, a durable power of attorney, and a health care directive). However, if you have a beneficiary with special needs, we may recommend a special needs trust. And for our higher wealth clients who may face taxation at death, we may recommend creation of an IRA trust, irrevocable life insurance trust, grantor retained annuity trust, or other forms of irrevocable trusts.
Types of Trusts
Trusts, which are often created as part of an estate planning process, are designed to help you manage your assets. There are many different types of trusts, all with specific purposes. The attorneys at Vaught & Boutris LLP provide assistance to clients with wide range of trusts, including:
- Living trusts
- IRA trusts
- Special needs trusts
- Irrevocable life insurance trusts
- Charitable trusts
- Grantor retained annuity trusts
A living trust, also known as a revocable living trust, is similar to a last will and testament in that both are used to transfer property to beneficiaries. However, a major difference—and one of the principal reasons why people choose to establish a living trust—is that a living trust is not subject to probate. This means that property can be transfered much more quickly, and without court oversight. Although beneficiaries of the trust must be notified of the trust administration process, this process is not public. Trust administration is also, as a general matter, significantly less expensive than a probate.
An IRA trust allows a person to leave the wealth in his or her individual retirement account (IRA) to a beneficiary. These are usually structured in a way that ensures the assets in a person's IRA trust are protected from financial difficulties that may be incurred by the beneficiaries. They may also be set up to make sure estate taxes are paid.
Special Needs Trust
Also referred to as a supplemental needs trust, a special needs trust is designed to provide benefits to a beneficiary who is physically or mentally disabled, or who has a chronic or acquired illness, and is unable to maintain meaningful employment. A special needs trust is designed so as not to disqualify the beneficiary from receiving important forms of government assistance during his or her lifetime.
Irrevocable Life Insurance Trusts
Irrevocable life insurance trusts are used to hold life insurance policies outside of a person's gross estate. This allows for the passage of a significant asset while using little or none of the lifetime exemption for estate and gift taxes. Irrevocable life insurance trusts are often used as a tool to ensure that estate taxes can be paid on death, or to minimize estate and gift taxes for individuals whose assets exceed the exemption amount.
The two major types of charitable trusts are charitable lead trusts and charitable remainder trusts. With a charitable lead trust, a charity receives a set amount (either a fixed annuity or a percentage) from the trust for a term of years, and at the termination of this term, a named beneficiary--or the person who established the trust--receives the remainder. This structure serves to not only benefit a favorite charity, but to provide an estate and gift tax deduction for the amount passing to charity. In addition, the person who establishes the charitable lead trust can, if structured correctly, take an immediate income tax deduction for the value of the gift to the charity.
A charitable remainder trust is an irrevocable trust that provides for payments (either an annuity or a unitrust amount) to an individual for a term of years or for life, with the remainder to pass to a named charity (or charities). A charitable remainder trust is a valuable tool for transferring highly appreciated assets while avoiding capital gains taxes, while benefitting a favorite charity. The charity may sell the asset and reinvest the proceeds without being subject to capital gains taxes. If structured correctly, the individual receives an immediate charitable income tax deduction, thereby potentially reducing income taxes. In addition, the individual is guaranteed an income stream for a term of years (or life), with the knowledge that a charity (or charities) of choice will also benefit.
Grantor Retained Annuity Trusts
A grantor retained annuity trust is a powerful tool for moving assets that are expected to appreciate significantly out of one's gross estate and into an irrevocable trust. The value of the asset at the time of the transfer is declared as a gift to the Internal Revenue Service, but any future appreciation of the asset is not attributable to the person who established the trust. Therefore, this appreciation will not count against the person who established the trust's lifetime estate and gift tax exemption amount.
If you have questions about preparing a trust or need assistance in doing so, the attorneys at Vaught & Boutris would be happy to speak with you.
Trusts and Trusts Attorneys
Trusts, which are often created as part of an estate planning process, are legal agreements that set rules for property held for beneficiaries.
Components of a Trust
Trusts have four components:
- Trustmaker: Also known as the grantor, trustor, or settlor, this person creates a trust.
- Trustee: The person who manages the assets of a trust and is responsible for distributing the property in accordance with the terms created by the trustmaker. While a trustmaker is alive, he or she can also be the trustee.
- Beneficiary: The person or entity who receives the benefits of a trust. The trustmaker can designate him or herself as a beneficiary.
- Assets: The property that is placed into a trust (also known as trust property).
Why Consult a Trust Attorney?
Anybody may set up a trust. However, state and federal trust laws can be complex. To avoid litigation, your trusts must meet specific requirements, also known as certainties. They are:
- Certainty of intention: A clear intention to create a trust must exist.
- Certainty of subject matter: The property to be held in a trust must be clearly identified. In other words, it must be specific property, such as real estate or cash.
- Certainty of objects: Trust beneficiaries must be clearly defined or ascertainable. There are different tests for certainty of objects depending on whether a trust is fixed or discretionary.
Working with a qualified trust attorney can give you peace of mind in creating the documents that will provide for your loved ones and beneficiaries. If you’d like legal guidance, the attorneys at Vaught & Boutris LLP provide trust assistance in the following areas:
- IRA trusts
- Living trusts
- Life insurance trusts
- Grantor retained trusts
- Charitable trusts
- Asset protection trusts
- Special needs trusts
- Income trusts
- Powers of attorney
- Trust administration and litigation