Understanding Trusts in Estate Plans
Trusts can be a great solution to plan for your future. They can also provide you with more complex tax and asset protection strategies. Depending on the type of trust you create and your goals, trusts can help you create and distribute resources to your loved ones after your death. Understanding trusts in estate plans can help you plan better for your own future.
Living trusts and testamentary trusts make up the two basic types of trusts. Living trusts are set up during that person’s life. Testamentary trusts are within a will, and usually established after a person’s death.
There are three major things that every trust must have. There needs to be a person creating the trust (known as a grantor, truster, or maker), the party named to care and manage properties and belongings, and the beneficiary (the person for whose benefit the trust was created).
Revocable and irrevocable trusts
No matter your role in the trust, it is important to know the difference between revocable and irrevocable trusts. A revocable trust is a living trust that allows permission to revoke or amend them when you wish.
An irrevocable trust is the exact opposite. These kinds of trusts cannot be revoked or changed in any way. These kinds of trusts are used to produce tax or asset protection results. The truster cannot also act as the trustee when creating an irrevocable trust.
Social security and trusts
Supplemental security income trusts can affect your eligibility for benefits. If you placed assets into a trust on or after January 1, 2000, the assets will generally count as your resource in determining your eligibility for supplemental security income benefits.
If you have a revocable living trust, the whole trust is considered your resource. However, if you have an irrevocable living trust, there are no circumstances in which payment could be made to you or for your benefit. Therefore, only the portion of the trust from which payment could be made will be counted as your resource.
Credit Shelter Trusts
There are more types of trusts than just those listed above. Credit shelter trusts are also known as bypass trusts and family trusts. The primary purpose of a credit shelter trust is to reduce the amount of estate taxes that you would otherwise owe at death. You can accomplish this by passing money from your estate directly to your heirs outside of probate before passing the rest of your estate to your spouse tax-free forever.
Qualified Personal Residence Trusts
A qualified personal residence trust can remove the value of your home or property from your estate and become useful if your home is to grow in value. If a beneficiary is a qualifying family member, then you may use the assets in the trust tax-free. Otherwise, you must pay capital gains taxes on assets that are transferred out of an irrevocable trust.
Qualified Terminable Interest Property Trusts
If your family has experienced divorces, remarriages, or stepchildren, an estate plan can help avoid probate after your death. A qualified terminable interest property trust allows you to direct assets to specific relatives once the surviving spouse dies.
Irrevocable Life Insurance Trusts
When an irrevocable life insurance trust is included in a will, it can help you remove your life insurance from your taxable estate. These trusts allow the beneficiary to designate a trustee to make sure the policy’s proceeds are used for the designated purpose. This means that both you and your heirs benefit from these trusts: You don’t have to worry about paying estate taxes on the policy, and your heirs receive tax-free income.
Understanding Trusts with Grand Strand Law Group LLC
At Grand Strand Law Group, we know that understanding trusts in estate plans can be confusing during tough times. We are here to help you every step of the legal way. Give us a call at 843.492.5422 and learn about howestate planning can resolve these situations before they can begin.