In planning for the disposition of one’s estate after death, there are many issues to consider. Some individuals may have significant levels of wealth, resulting in an interest in protecting heirs from excessive tax consequences. Others may be concerned about the potential increase in value of a specific asset. Others may want to ensure that complicated family situations do not interfere with their wishes for certain heirs to benefit. In any of these cases, special types of trusts may be beneficial. In fact, there are several types of trusts to consider in estate planning.
The most commonly used trusts may be revocable and irrevocable trusts. These provide general direction for the disposition of an estate while limiting the risk of probate tying up assets and costing extra money. An irrevocable trust is very difficult to change but allows for some helpful tax protections, especially beneficial if there is significant wealth at stake.
A qualified terminable interest property trust may be appropriate for an individual who wants to support a spouse while leaving some assets to children from an earlier marriage. A generation-skipping trust similarly addresses one’s wishes to leave an inheritance to grandchildren or later generations. A qualified personal residence trust or a credit shelter trust might be considered to protect heirs from certain tax and financial implications. An irrevocable life insurance trust may be used to ensure that final estate expenses are covered by a life insurance policy that has been removed from the taxable assets of the estate.
In order to obtain the intended benefits of any of these types of trusts, it is important that the related estate plan is completed properly so that the trust is legally recognized as being valid. A lawyer may be important for ensuring that one’s wishes are clearly communicated and effectively managed.
Source: CNN Money, “What kinds of trusts are there?“, December 07, 2014
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