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During your working years, if you save
money diligently and make wise
investment choices, you have a good
chance of enjoying a comfortable
retirement. But will you be taking
proper care of your family once you are
gone? The only way to answer that
question is to do proper estate
planning, and trusts can be a key
element of your estate plan.
How do trusts work? As the
grantor of a trust, you set up the rules
and appoint a trustee, who manages the
trust and its assets. You and other
donors then fund the trust with
securities and other assets. The trustee
collects these gifts and invests the
money according to the rules of the
trust, which will also determine the
trust's beneficiary, the recipient of
the trust's proceeds.
Different trusts have
different objectives. When you design
your estate plans, you may well need
more than one trust. Here are some of
the most widely used ones:
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Revocable Living Trust. A revocable
living trust can help you leave
assets to your heirs without going
through the costly, time-consuming
and public probate process. When you
set up a revocable living trust, you
can control your assets during your
lifetime and determine how they will
eventually be distributed to your
heirs. You could, for example, have
money distributed to your children
or grandchildren in installments,
over a period of years. Plus, a
properly established revocable
living trust will carry out your
wishes if you become incapacitated.
-
Bypass Trust. If you are married,
you can leave an unlimited amount of
assets to your spouse, free of
estate taxes and without using up
any of your estate tax credit. But
if your spouse then dies with an
estate worth more than the federal
estate tax exemption – $2 million in
2007 – his or her estate would be
subject to the estate tax.
Unfortunately, your original estate
tax credit was unused and, in
effect, wasted. Basically, a Bypass
Trust allows both spouses' estate
tax exemptions to be preserved, to
the benefit of the surviving spouse
and, ultimately, the children.
-
Special Needs Trust. If you have a
family member with a disability, you
might want to think about a Special
Needs Trust. People with mental or
physical disabilities can hold an
unlimited amount of assets in a
Special Needs Trust (sometimes
called a Supplemental Needs Trust)
without having the assets count
against eligibility for certain
governmental benefits, such as
Supplemental Security Income (SSI),
Medicaid, vocational rehabilitation
and subsidized housing.
-
QTIP Trust. If you are married for a
second time but want to make sure
your children from your first
marriage are protected, you may want
to think about a QTIP (Qualified
Terminable Interest Property) Trust.
A QTIP trust enables you, as
grantor, to provide for your
surviving spouse and also maintain
control of how the trust's assets
are distributed once he or she also
dies.
Of course, trusts are complex
instruments, so you should work with an
attorney, in addition to a tax adviser,
to make sure you are using the right
type of trust and then consider a
financial professional for funding it
with the appropriate vehicles. By using
trusts wisely, you can leave a legacy
that benefits everyone. |
