Because of the term “trust fund baby” many people think of trusts as tools only for the very wealthy. However, they can provide benefits to those with even a modest level of wealth. The goal of any trust is to minimize taxes and avoid probate. Depending on the size of your estate, you may need more than one type of trust. You and your estate planning attorney may also utilize other tools to keep your assets out of probate.
Types of Trusts
The most common type of trust is a revocable trust. This means you can change it at any time. Your estate planning attorney may also refer to this as a living trust or a revocable living trust. Any part of your estate that you place in your revocable trust is kept out of probate. And, just like a will, you are free to change the terms of the trust and what is in it at any time. Because it is a private document, no one will see it until your death. Your beneficiaries may see all or part of it depending on the individual.
There are many other types of trusts that benefit high net worth estates. They include:
- Irrevocable Life Insurance Trust (ILIT) – This irrevocable trust is designed to avoid probate and to house life insurance outside of the taxable estate of the grantor.
- Grantor Retained Annuity Trust (GRAT) – A GRAT is best utilized in situations where there are significantly appreciating assets. The grantor receives an annuity payment. The appreciation passes to the beneficiaries free of estate and gift taxes when properly structured.
- Intentionally Defective Grantor Trust (IDGT) – Although it sounds like a mistake, this type of trust freezes the value of certain assets for estate tax purposes. Through intentional loopholes, the grantor pays taxes stemming from the income of the assets. There are still some tax implications, but they are reduced.
Pros & Cons of a Trust as Part of Your Estate Plan
The main benefit of a trust is that the portion of your estate in the trust is exempt from probate. Another primary benefit is that you can reduce and often avoid the death tax on the assets held in trust. Most people find the privacy and flexibility of a trust a benefit. One downside is that you have to move the assets into the trust and when real estate and hard assets are part of the trust, there can be fees associated with changing the titles. Setting up a trust is initially more expensive than drawing up a will, however in the end, the cost savings from avoiding probate often significantly outweigh the additional cost of drawing up a trust.
Is a Trust Right for You?
That’s where an experienced estate planning attorney can help you. If you are looking for a local estate law firm, The Faulkner Firm is here to help. We specialize in wealth preservation and can help guide you to the right type or types of trusts for not only your personal wealth, but also any business or commercial assets you have. Call us today at (727) 939-4900 to schedule your initial consultation.