To start, there are two different types of trusts, either living trusts or testamentary trusts. A living trust is created during the person’s lifetime, whereas the testamentary trust is established after death as part of the will.
When it comes to living trusts, they can either be revocable or irrevocable. A revocable trust can be changed or modified at any time; you stay in control of all the assets and change the terms whenever you choose. An irrevocable trust does not allow the same flexibility; changes cannot be made without the beneficiary’s consent. The assets in the trust are no longer yours but the up side is that the appreciation of assets in the trust are not subject to estate taxes.
Other more specific types of trusts include:
Irrevocable life insurance trust: removes life insurance from taxable estate to help pay estate costs and provides heirs with cash for various reasons. To do this, you must surrender ownership rights of the policy but the benefits sometimes outweigh the resulting policy restrictions.
Credit shelter trusts (“Bypass trusts”, “Family trusts”): this type of trust focuses on mitigating taxes. The will dictates an amount to be bequeathed that is up to but not over the estate tax exemption. The rest of the estate is transferred to your spouse tax free. Even if the estate grows within this type of trust, it is always free of estate tax.
Generation-skipping trusts (“Dynasty trusts”): this allows tax free transfer of a large amount of money to family two generations your junior, which is usually grandchildren.
Qualified personal residence trusts: this trust removes primary or vacation residence from the estate. Those who expect their properties to appreciate in value may find this to be a useful trust.
With so even more options available, it is wise to partner with an experienced Doylestown estate lawyer. Wills, trusts and estates can become extremely useful tools but require the information and experience of an estate lawyer. At the Law Offices of Michael Kuldiner, P.C., we can partner with other planning professionals to ensure your estate plan is tailored to fit your needs. Call today to set up a consultation with a Bucks County estate planning attorney, (215) 496-8171.