TRUSTS
If used correctly, trusts provide flexibility and control over your
assets when you die. Since I began to practice law in 1988, I have
used trusts in a variety of situations, such as the following:
1. Credit Shelter Trust (A-B Trust): This trust enables you to utilize
your exemption from estate tax, which is $2 million for 2008. So the first
$2 million of your assets avoid estate tax. However, you must include
language in your Will in order to utilize this exemption.
2. QTIP Trust (Qualified Terminable Interest Property): You are able to
control the remainder of your assets in excess of your exemption by
transferring them to this trust. This trust may be beneficial where an
individual has multiple marriages or where a surviving spouse has
limited financial experience and a trustee will be appointed for the
surviving spouse’s benefit.
3. QDOT Trust (Qualified Domestic Trust): If one or both spouses are
not US citizens, the rules are different. A QDOT allows for assets to be held
in trust for the noncitizen spouse without incurring an estate tax, thereby
deferring the tax until the spouse's death or the assets are withdrawn.
Technical requirements must be satisfied in order for a surviving
noncitizen spouse to use the unlimited marital deduction.
4. Disclaimer Trust: A disclaimer is the refusal to accept benefits conferred
by will or by operation of law. A disclaimer enables a surviving spouse to
transfer assets to the trust by disclaiming ownership in those assets.
Disclaimed property is transferred to the trust without being taxed.
5. See-Through Trust: If the trust qualifies as a "see-through trust," the IRS
permits the use of the oldest trust beneficiary's life expectancy for
purposes of required minimum distributions. This is especially beneficial
when the trust is for minor children. Since they most likely are
significantly younger than you, they can benefit from a much longer
applicable distribution period. Indeed, they have the potential for
decades of tax-free growth of your assets.
6. Irrevocable Life Insurance Trust: An irrevocable life insurance trust is
created to own life insurance so that the benefit paid upon the death of
the insured in not included in the insured’s estate and therefore avoids
estate taxation.
7. Special Needs Trust (Supplemental Needs Trust): This trust enables an
individual with a mental or physical disability to have assets held in trust
for his or her benefit. This trust provides for supplemental and extra care
over and above that which the government provides. Monies held by the
trust are a noncountable resource and allow the disabled individual to
qualify for available benefits and programs.
8. Living Trust (Revocable Trust): The two most often-cited
advantages of a living trust are its role in the event of the grantor’s
incapacity and the avoidance of probate upon the grantor’s death. The
living trust typically provides that in the event of the grantor’s incapacity,
a successor beneficiary automatically takes over the administration
of trust property, thereby avoiding public guardianship proceedings.