A wide range of trust options exist today. Many clients prefer to use a combination of different trust vehicles to take advantage of all the tax savings and income benefits available to them. Some of the most popular types of trusts are described here. The Family Heritage Trust Company, along with your attorney, can help you determine the most appropriate use of these vehicles for your individual or family situation.
WHAT IS A SPECIAL NEEDS TRUST?
A special needs trust allows a person with disabilities to receive supplemental funds for living expenses without disqualifying them from governmental benefits programs, such as Supplemental Security Income (SSI) and Medicaid. A special needs trust also conserves assets to provide a “cushion” in the event that public benefits are ever reduced or eliminated in the future.
The trustee of a special needs trust must be extremely careful to use the funds in the trust so that the government benefits for the beneficiary are not affected.
WHAT IS A CHARITABLE TRUST?
Similar to other trusts, a charitable trust is a legal arrangement whereby a trustee holds property and uses it for the benefit of the person or organization you name – the beneficiary. The trustee receives the cash, securities, or other property from you, along with exact instructions for making the gift to the charity on your behalf. Gifts are possible during your lifetime or through your will.
WHAT IS A REVOCABLE LIVING TRUST?
A revocable living trust is a legal arrangement between two parties. The first person – referred to as the grantor – establishes the trust. The second party, the trustee, holds and manages assets to benefit a third person – the beneficiary. The name says “living” because this trust takes effect as soon as the grantor creates it, and will continue during the grantor’s lifetime (and even beyond if that is the grantor’s desire). The grantor can amend or revoke (“terminate”) the trust at any time.
WHAT IS A FAMILY TRUST?
A family trust, also known as a “B Trust,” “credit shelter” trust, or a “Bypass Trust,” provides a husband and a wife an opportunity to pass money or assets on to children in the most tax-efficient way. By placing assets into a family trust upon the death of the first spouse, assets and income are still available to the surviving spouse, but the exemption amount of the deceased spouse (currently $3.5 million) can be passed onto children without ever subjecting those assets to federal estate taxes.
WHAT IS A MARITAL TRUST?
Marital trusts are often utilized during estate planning, by couples, as a strategy to hold the necessary amount of assets to ensure that no estate tax is due upon the death of the first spouse.
WHAT IS AN ESTATE TRUST?
An estate reduction trust, also known as a “Crummey Trust,” will achieve the estate planning goal of transferring wealth from one generation to the next, but will also limit the beneficiaries’ decision-making power over the assets that have been transferred.
WHAT IS A GENERATION SKIPPING TRUST?
This type of trust allows the grantor to pass assets to grandchildren or their descendants, thus “skipping” a generation or more. If the amount is placed in trust during a lifetime, limits are imposed under the Gift Tax law and much less can be put into the trust. Nevertheless, this planning technique prevents the assets and the appreciation of those assets from being taxed at the death of the grantor and for generations to come.