There are many types of trusts that can be created to serve your particular needs. Most often, our clients want to create a trust to designate who will receive property from their estate, for tax advantages, or to protect property from creditor’s claims.
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I want a trust instrument. W hat is a trust? How do I get a trust?
A trust instrument is a writing executed by a settlor used to allocate property to beneficiaries. Trust instruments can be an inter vivos trust (during your lifetime) or a testamentary trust (created under a will).
There are many types of trust instruments that can be created. Some of the various types of California trusts our office have created include; special needs trust, reciprocal trusts, revocable trusts, irrevocable trusts, and living trusts.
One type of trust instrument is a living trust. This is also called an inter vivos trust which means it was created during your lifetime. The primary purpose of a living trust is to avoid probate, minimize taxation, and preserve financial privacy. A living trust can “revocable” or “irrevocable.”
A trust instrument can also be revocable. With a revocable trust, you as settlor and trustee, retain control of all the assets in the trust. The trust and it’s assets remain in your estate and may be taxed. You can revoke or change the terms of the trust at any time. Upon your death the trust becomes irrevocable and any property in the trust is passed on to your designated beneficiaries.
Your trust instrument can be irrevocable. You cannot change an irrevocable trust without the consent of all beneficiaries. The assets placed in am irrevocable trust are no longer yours to control. However, the appreciated assets in the trust are not subject to estate taxes. Irrevocable trusts are also known as insurance trusts, charitable trusts, and children’s’ trusts. You may want to consider this type of trust for tax advantage or to protect certain property from creditors.
A testamentary trust is created and contained in your will and goes into effect upon your passing. Such trust instruments often address assets that are accumulated during your lifetime or which come into effect upon your passing (life insurance policy proceeds or a wrongful death settlement actions).
This is also called a bypass trust. An A-B trust goes into effect when you or your spouse passes away. These are complicated trust instruments. Please click on the following link for more information.
Credit Shelter Trusts
Also known as a bypass trust and a family trust. In these types of trusts you can bequeath in your will an amount of money to the trust up to but not exceeding the estate-tax exemption. The money you place into a bypass trust and any appreciation is exempt from estate tax.
Also known as a dynasty trust, allows you to transfer a substantial amount of money, tax-free, to beneficiaries who are at least two generations your junior relationship – children are junior first generation and grandchildren are junior second generation. The exemption usually avoids estate taxation for the beneficiaries of that generation.
Qualified Personal Residence Trusts (QPRT)
Creating this type of trust allows you to gift your house at a low gift tax value to a beneficiary for the use of the home during their lifetime. The QPRT avoids estate tax. A QPRT is created when you want to move the value of your home or vacation dwelling from your estate into a trust. Property that is likely to appreciate in value will not be subject to estate tax.
Irrevocable Life Insurance Trusts
An irrevocable life insurance trust is used when you want to remove an insurance policy from your taxable estate. To remove the policy from your estate you must surrender ownership rights which means you may no longer borrow against the value of the policy or make changes to the trust without consent from beneficiaries. In return, the proceeds from the policy may be used to pay any estate costs after you die and provide your beneficiaries with tax-free income.
Qualified Terminable Interest Property (Q-TIP) Trusts
Trusts qualify for the unlimited marital deduction. A surviving spouse may receive assets without having to pay estate taxes when the first spouse dies. This type of trust also allows assets to pass to heirs after the surviving spouse dies and is most often used in conjunction with a divorce, remarriage, and stepchildren, and your desire to direct parts of your estate to particular relatives. The surviving spouse will receive income from the trust, and the trust beneficiaries will get the principal or remainder after the surviving spouse dies.
Special Need Trusts
Created for disabled beneficiaries that are established for mentally or physically disabled beneficiaries with property that is held by the trust. A trustee manages financial affairs on their behalf. The trust may be structured so the disabled are still eligible for and receive basic government disability benefits.
A pet trust is created to provide for the pet’s care after the owner becomes unable to do so due to death or incapacity. The trust may exist for the life of the pets.
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