When attorneys talk about trusts they often end up confusing laypersons with all of the legal jargon. There are many different types of trusts out there and each type has its own terminology. This legalese can be difficult for the uninitiated to understand.
This is a problem for people who would like to set up a trust. They need to know what it is their attorneys are talking about so they can choose the right type of trust.
Recently, the Motley Fool discussed some common trust types in "Navigating the World of Trust Funds: Your Quick Guide," including:
- Revocable Living Trusts - These are trusts the settlor (the person who creates the trust) can easily dissolve. If circumstances change, assets in the trust can be removed and a different trust can be created. These trusts avoid probate. They do not reduce taxes.
- Irrevocable Trusts - These trusts cannot be revoked. They often have estate tax benefits, while revocable trusts don't.
- Credit Shelter Trusts - While not as useful as they used to be, these trusts still offer a good way to avoid some estate taxes. They are particularly useful in Maryland and DC, which currently have state estate taxes for estates greater than $2million and $1 million. Assets in the trust are held for the benefit of children normally, but a spouse can still use those assets while he or she is alive. The assets are not counted as part of the spouse's estate for tax purposes.
- Generation-skipping Trusts - These trusts are created for the benefit of grandchildren instead of children. This is normally done for estate tax purposes, but the trusts need to be set up by experts to avoid other tax issues.
- Qualified Personal Residence Trusts - These very specific trusts are a way to pass a home on to heirs while minimizing estate and gift taxes on the home.
When it comes to deciding which trust “flavor,” if any, is appropriate for you, be sure to contact a qualified estate planning attorney.
Reference: Motley Fool (Sept. 18, 2016) "Navigating the World of Trust Funds: Your Quick Guide."
Suggested Key Words: Estate Planning, Trusts