With the turning of the calendar and the start of a new year, resolutions are in the air. As you go about welcoming new possibilities, January marks the perfect time to start, revisit or finalize your estate plan. Doing so will not only help protect and secure your wealth for the future, it’ll provide you with peace of mind that your assets will be passed along to your beneficiaries according to your wishes.
Every estate plan should address who is responsible for you and your assets in the event you become incapacitated or no longer wish to handle certain matters, who (or what entity) benefits from your wealth after (and even before) your passing, and when such a handover is to occur.
When making these decisions, it’s recommended to at least consider how a trust could work to your benefit. Sometimes referred to as a “will substitute,” a trust is a major component of a well-crafted estate plan—and isn’t just for the ultra-wealthy!
There are several different types of trusts, which can be used to protect assets from creditors, provide tax advantages, ensure that your wishes are faithfully executed, provide privacy and unlock new planning and philanthropic opportunities. Trust entities tend to pay their own taxes, and must therefore receive a tax identification number from tax authorities. They can hold equities, bonds, real property and even a business.
While wills may be a more well-known vehicle for establishing one’s wishes and declaring one’s beneficiaries, trusts provide a wide range of methods for protecting, distributing and sharing your wealth. Here are some of the scenarios in which trusts can benefit you, your loved ones and organizations that are important to you.
Revocable and Irrevocable Trusts
Even though there are several different types of trusts, they fall into two main categories: revocable and irrevocable trusts. The major difference between the two is the flexibility trustees have with the vehicle they opt to use.
Revocable trusts can be changed, updated, and, as the name suggests, even revoked or dissolved. These trusts are typically established earlier in an individual’s financial timeline. They tend to embody the adaptive planning we encourage at CG Financial.
With a revocable trust, you can name yourself trustee (or co-trustee), affording you ownership and control of the trust during your lifetime.
Unlike revocable trusts, irrevocable trusts are “set in stone” and cannot be altered by the grantor after they’re executed. These trusts come with certain tax benefits and better asset protection than a revocable trust.
When you pass away, a revocable trust will automatically become an irrevocable trust.
Both types of trusts are popular tools for estate planners. A financial advisor skilled in estate planning will both listen to your needs and help answer your questions, so that you can choose which trust is best for your situation. At CG Financial, we even partner with local estate attorneys to provide you with the right legal and financial advice to secure your future.
The Many Different Types of Trusts
Before establishing a trust, it’s important to have an idea of the different trusts available for estate planning and some of their more popular uses. Individuals will use a carefully designed trust for anything from transferring assets to providing financing for long-term care to funding charities or providing for individuals with special needs.
- A Marital, or “A” Trust, is designed to provide benefits to a surviving spouse. These trusts are typically included in the taxable estate of the surviving spouse and can help delineate which assets will be used to the benefit of a partner.
- A “B” Trust, sometimes called a Credit Shelter Trust, is often used in conjunction with a marital trust. It is designed to take full advantage of any federal estate tax exemptions and is an example of an irrevocable trust. Estate planners frequently use this trust to minimize tax bills.
- An Irrevocable Life Insurance Trust (ILIT) is another example of estate planning that uses an irrevocable trust. It is designed to exclude life insurance proceeds from the deceased’s taxable estate. It can also provide liquidity for estate taxes or other needs.
- Estate planners use Qualified Terminable Interest Property (QTIP) Trusts to provide income for a surviving spouse. Upon the death of that individual, the “beneficiary tree” then branches and distributes trust assets to additional beneficiaries named by the deceased. It’s more commonly utilized in second-marriage situations or as a way to maximize tax benefits.
- Philanthropically inclined individuals can benefit from a Charitable Remainder Trust or a Charitable Lead Trust.
- A Charitable Remainder Trust initially distributes income to a designated beneficiary, which could also include the grantor, either for life or a period of time. Upon the death of the final income beneficiary (or at the end of the term), a philanthropic organization receives the remaining trust property.
- A Charitable Lead Trust first provides benefits to a charity, with the remainder of the trust property later distributed to beneficiaries.
- A Special Needs Trust is designed specifically for trustees wanting to provide financial support to individuals with special needs. The trust supports those individuals, while avoiding situations that could jeopardize their eligibility for certain government benefits.
Other trusts include so-called Dynasty Trusts, Testamentary Trusts and Generation-Skipping Trusts.
State laws can also significantly affect the benefits and provisions available to estate planners. Working with a knowledgeable advisor and attorney is critical for understanding these nuances.
Protect Your Wealth With Planning and Trust(s)
As your life progresses and your plans morph in the year ahead, we’re committed to helping keep you on track. Part of that commitment involves adaptive estate planning, so that your wealth and wishes align today and tomorrow.
We work collaboratively with estate planning attorneys to maximize the benefits of your estate, as well as to reduce your taxes and help control how assets are transferred. Our CG Streamlined Planning techniques, which we carry out in cooperation with a trusted local estate planning law firm, provide affordable and highly efficient estate planning. We’ll cover the entirety of your estate planning needs and provide a solid foundation for future adaptive planning.
At CG Financial, our advisors are ready to listen and work with you to create, fund, insure and update your estate plan. We want you to be confident that those most important to you will be cared for long into the future. Contact CG Financial today to discuss your plan, and to protect your hard-earned wealth.
The information in this material is not intended as legal advice. Please consult a legal professional for specific information regarding your individual situation.