Understanding the various trust designations can put into perspective the best choices for you and your estate planning efforts. Considered the primary inclusion of any legacy wealth plan, a family wealth trust in Vermont serves a number of purposes, including an avenue for avoiding probate.
Understanding Trust Designations
Before we delve into why a family wealth trust is a solid choice for many, we take a look at the types of trusts. The two basics are living trusts (also known as an inter vivo trust) and testamentary trusts.
A living trust is just that: a trust set up while a person is still living. A testamentary trust is one that’s part of a will and doesn’t kick in until the will goes into effect.
Revocable versus Irrevocable
These trust names are also telltale signs; with a revocable trust, you – the owner – can revoke it at any time. An irrevocable trust prevents you maintaining any type of control and in fact, your named beneficiary is the only one who can make changes. You’re basically separating yourself from the property in the trust. This distance, so to speak, ensures those assets are not subject to estate taxes or creditors, which brings us to the family wealth trust.
As part of your will, you place properties and assets into the family trust, provided you don’t exceed any estate tax exemption limitations. Even if the value grows, it remains free of estate taxes. This makes it a viable choice for many.
Irrevocable life insurance trusts are used to separate life insurance policies from the taxable portion of your estate. They can help cover the estate costs while also providing a cash resource for your heirs. Again, you agree to release your ownership rights. This means you won’t be able to change the beneficiaries nor will you be able to borrow against it. The reason many prefer these types of trusts is the lack of taxes that your heirs will have to pay.
And speaking of your heirs, a dynasty trust, sometimes referred to as a generation skipping trust, provides a way to transfer part of your estate – tax free – to beneficiaries two generations behind you. Grandparents often incorporate these so that they can play a role in the future of their grandchildren, even if they are not around.
Personal Residence Trust
Anticipating a big increase in the value of your home? You might want to consider a qualified personal residence trust. Simply stated, it allows you to remove the value of your home – and sometimes second residential properties – if you feel as though the property will appreciate significantly in value.
Divorce and Estate Planning
Sadly, divorce is a big part of many Americans’ lives these days. When that happens, there are typically stepchildren and new family members. A qualified terminable interest property trust provides you the option of directing assets to only specific relatives. It allows you to provide for the new spouse, but also ensures children from a first marriage aren’t left behind. There’s typically one caveat with these types of trust, however; specifically, your surviving spouse will receive income from the trust with your other beneficiaries, typically your children, receiving the principal or remainder after your spouse dies. That can leave a lot of time for the new spouse to make changes, even if they don’t directly affect the trust.
As you can see, there are a lot of options when it comes to protecting your family’s wealth. Your unique needs will help your estate planning attorney recommend your best options.
Latest posts by Stephen Unsworth (see all)
- A Hypothetical Conversation Between an Inheritance Planning Attorney and a Client - June 12, 2019
- Avoid Intestacy to Prevent Future Problems - May 22, 2019
- Two Business Structures That Provide Asset Protection - May 1, 2019