Would a Revocable Trust Be Beneficial for You?

When developing an estate plan, a revocable trust can provide many benefits that, in most cases, significantly outweigh the cost of setting one up. Here are three of the benefits of setting up a revocable trust. Trust Basics A trust is an written arrangement under which one person, called a trustee, holds legal title to property for a beneficiary. You can be the trustee of your own living trust and keep total control over the assets in the trust. Trusts generally fall within two categories: 1. Living trusts created during the lifetime of individuals. Living trusts, also know as “inter…

A Measured Approach To Selecting the Right Trustee(s)

A trust is often only as good as the person selected to manage it. It may a daunting process, but selecting the right trustee and having fail-safes in place are crucial to ensuring the complexities of a trust are handled appropriately. Here are some of the pros and cons of choosing different trustees. Advantages of Relative Trustees Many experts agree that a relative is a logical trustee choice for trusts designed to transfer wealth within the family. When underage children are involved, it’s important to select a trustee that is familiar with the needs and circumstances of the family. You…

Leaving a Legacy for Your Heirs

Despite its name, the term “dynasty trust” has nothing to do with aristocracy. It involves preserving wealth for your heirs. Basic premise: With a dynasty trust, you transfer the assets of a business, real estate or other income-producing property to a trust. Gift tax, estate tax and the generation skipping transfer tax may be avoided on transfers if they are handled properly. Typically, a dynasty trust is set up as an “inter vivos” trust during your lifetime, but it can also be triggered by a provision in your will upon your death. Depending on the exact terms, the income accumulates…

Consider a Qualified Personal Residence Trust for Your Vacation Home

Do you own a beach house, ski chalet, resort condo or other vacation getaway? Perhaps it’s the place where cherished family reunions take place with your children and grandchildren. Many people with second homes want them to stay in the family but also want to limit estate and gift taxes upon their transfer. One way to achieve this might be to create a qualified personal residence trust (QPRT). With a QPRT, you basically transfer ownership of your personal residence or vacation home to a trust while you retain the right to use the property during the trust term. After that,…

The Benefits of Charitable Remainder Trusts

A charitable remainder trust (CRT) is an irrevocable trust set up to benefit a charitable organization. The trust’s term is one lifetime, several lifetimes, or a period not to exceed 20 years. Basically, you irrevocably gift an asset to the CRT, usually an asset with a low tax basis that has appreciated significantly. During the trust’s term, you receive a certain amount of income and/or capital annually (called the retained interest). At the trust’s termination, the charitable organization receives the remaining assets (called the remainder interest). CRTs offer several benefits: Since the trust is a tax-exempt organization, the CRT can…

Seven Non-Tax Reasons to Create a Trust

Using trusts as an estate planning tool is often done to achieve tax savings. By setting up certain types of trusts, a high-net-worth individual can avoid exposure to estate taxes levied by the federal and state governments. While this an important consideration if your estate is likely to be liable for death taxes, there are many other reasons to create a trust. Here are seven reasons that are not estate-tax driven: 1. To Avoid Probate or Estate Administration. Assets in a trust don’t go through probate or an estate administration, the court-supervised process for distributing the assets. (Probate is when…

Save on Taxes While Doing Good

If you own assets that have appreciated significantly over the years, you may be able to profit more by giving them away than by selling them. By setting up a charitable remainder trust (CRT), you can transform a future tax liability into a current tax break, receive a steady source of income for the rest of your life and leave a gift to your favorite charity. Here’s how it works. Let’s say you invested $50,000 years ago in a stock now worth $350,000. One option is to sell the stock now and use the proceeds to help finance your retirement….

Tap into the Power of a Grantor Trust

The U.S. survived the worst recession since the Great Depression. But believe it or not, there is a silver lining: this tough economy has driven applicable federal rates (AFRs) to rock bottom levels. Each month, the IRS provides these prescribed rates for federal income tax purposes. AFRs are used to calculate the value of remainder and annuity interests and ensure that a debt transaction will not have below-market interest. So, what do these low AFRs mean for you? It means now is the perfect time to tap into the power of grantor trusts. Read on to learn about a few winning…

A Trust to Help Fund the Payment of Estate Taxes

Consider this dilemma faced by a high-net worth individual: He doesn’t want his heirs to be burdened with estate taxes so he takes out a life insurance policy to cover the tax bill. But then the proceeds of the insurance policy wind up as part of his estate — only to be included for estate tax purposes. In this case, the individual might solve the problem by setting up an irrevocable life insurance trust (ILIT). What Are ILITs and How Are They Used? There are many estates that are subject to estate taxes, either the federal estate tax, or an…

Pair a Trust and an Installment Sale to Pass on Your Business

For many people, a family business is a significant source of wealth, so passing it on to the next generation in a tax-efficient manner is an important estate planning goal. One of the simplest and most effective strategies available is an installment sale to an intentionally defective grantor trust (IDGT). So long as the business generates sufficient cash flow to make the installment payments, a sale to an IDGT The Pros and Cons Of Selling to an IDGT An installment sale of a business to an intentionally defective grantor trust (IDGT) offers many benefits, including the following: Selling to a trust…