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Trusts

What is a Trust?

A trust is a legal entity (a holding device), created either during lifetime (an intervivos or living trust) or at death (a testamentary trust), which transfers property to someone (called the Trustee) for the benefit of persons designated as beneficiary in the trust instrument.

Living trust without tax planning: 
A living trust is a trust established during your lifetime, rather than at death. Much like a comprehensive will, a properly drafted living trust can provide excellent creditor protection for a beneficiary’s inheritance and in addition, avoids probate if properly funded during your lifetime. You may be the trustee of your trust and have full control over trust assets during your lifetime. However, if you become mentally incompetent, a successor trustee (usually your spouse) takes over and manages your trust estate with the same power and authority that you had.

Testamentary trust: 
A testamentary trust is a trust that becomes effective when you die (via your will or living trust) rather than during your lifetime. A testamentary trust offers the same advantages as a living trust does, but since it becomes effective after you die, it does not avoid probate.

Credit shelter trust:
A credit shelter trust is a testamentary tax planning trust which assures that your federal and or state estate tax exemption is “sheltered” rather than wasted by your death. It can be established during your lifetime or upon death depending on whether you want to avoid probate or not. It allows you and your spouse to fully use your federal and state estate tax exemptions.

GST or Dynasty trust:
A GST trust allows generation after generation to benefit from the trust without having trust assets included in the beneficiary’s estate for estate tax purposes. Generation-skipping transfers which exceed the exemption amount ($5,450,000 in 2016) are subject to a flat 40% GST tax in addition to estate and gift taxes.

QTIP trust:
A qualified terminable interest property trust is generally used in a second marriage situation when your second spouse is to receive trust income and benefits for life and upon your spouse’s death, the principal of the trust will be distributed to children from a prior marriage.

QDOT trust: 
A qualified domestic trust allows use of the marital deduction for assets passing to a non-citizen spouse. Without it, transfer taxes may be due on assets passing to a non-citizen spouse.

ILIT trust:
An “Irrevocable Life Insurance Trust” prevents life insurance proceeds from being included in your estate for estate tax purposes. Typically, life insurance proceeds are included in your estate even though they are payable to your spouse, children or other beneficiaries.