Trusts are financial documents that are alternative instruments to wills. A trust is a fiduciary agreement that allows a trustee or third party to hold assets on behalf of beneficiaries or a single beneficiary. Trusts are designed to avoid probate, which saves court fees, time, and possibly reduces applicable estate taxes. These documents can be structured in a wide array of ways as well as specify when and how the assets are passed onto the beneficiary.
Continue reading to learn more about some of diverse types of trusts offered by the Prestidge Law Firm, P.C.
Testamentary trusts are created under the Last Will and Testament, which allows them to be amended and revoked throughout the trust maker or testator’s life. However, once the testator dies, the trust is irrevocable and cannot be changed. In contrast to a living trust, a testamentary trust doesn’t come into existence until after the testator dies.
These trusts cannot be used to provide continuity of management of a testator’s property if they become incapacitated. Neither can a testamentary trust be used to circumvent probate.
Irrevocable Life Insurance Trust
With irrevocable life insurance trusts, the insurance policy is owned by the trust. This measure keeps the proceeds of the life insurance policy out of the taxable estate. Additionally, as the grantor makes gifts or contributions to fund insurance premiums, the estate tax is reduced. After the grantor’s death, the insurance proceeds or trust’s assets are available to beneficiaries income-tax free.
Charitable Lead Trust
Charitable lead trusts are a type of “split-interest trust,” where part of the interest goes to a charity and the rest goes to non-charities. Charitable lead trusts are designed to provide payments to one or multiple charities for a specified number of years (lead interest). At the end of the charitable interest, the rest (remainder interest) of the assets are transferred to non-charitable beneficiaries. In order to receive favorable tax treatment, these trust must comply with strictly mandated federal laws.
Generation-skipping trusts may be created as an irrevocable or revocable living trust. These types of trust can also be created as a testamentary trust. These vehicles are designed to hold the amount of property exempt from the generation-skipping tax under federal estate tax laws.
Grantor Retained Annuity Trust (GRAT)
With grantor retained annuity trusts (GRATs), the grantor transfers the property in the trust, but keeps the right to continue receiving income for a certain period of time or for life. The goal of GRATs is to minimize the property’s valuation for federal estate tax purposes at the time of the grantor’s death. With GRATs, the federal estate tax laws only require the income interests kept by the grantor to be included in the estate for federal estate tax purposes or upon the grantor’s death. In most instances, this provision allows a substantial discount from the total value of the property.
Trust the Estate Planning Attorneys at Prestidge Law Firm
Understanding the best trust for your needs can be extremely complicated and requires experience. The trust and estate planning attorneys at Prestidge Law Firm, P.C. offer more than 30 years of collective experience helping clients choose the most profitable estate planning vehicle. We handle each trust confidentially to avoid court-controlled inheritance.
Contact the experienced estate planning attorneys at Prestidge Law Firm today by filling out our online contact form or by calling us at 405-577-7703.