The advantage of including a trust in your estate plan is that trusts usually avoid probate. The beneficial effect of that advantage is that your beneficiaries may gain access to the assets held in trust faster than those assets transferred via will. When used optimally a trust may minimize estate taxes. Trust can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries. What follows are a brief description of the types of trust instruments that may be included in your estate plan.
Basic types of trusts
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Marital or “A” trust |
Provides immediate benefits to your surviving spouse. However, the assets in the trust are included in the taxable estate of the surviving spouse. The surviving spouse does not pay estate taxes on his or her spouse’s assets, until he or she passes. |
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Bypass or “B” trust |
Bypasses the surviving spouse’s estate, providing federal estate tax exemption for each spouse, popularly referred to as a credit shelter trust. |
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Testamentary trust |
Assets from the will are transferred into a testamentary trust upon death. The assets are subject to probate and transfer taxes and often continue to be subject to supervision by the Surrogate’s Court. |
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Irrevocable life insurance trust (ILIT) |
Designed to exclude life insurance proceeds from the deceased person’s taxable estate while providing liquidity to the estate and/or the trusts’ beneficiaries. This type of trust is irrevocable. |
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Charitable lead trust |
Estate assets pass to a charitable or religious organization and the remainder is given to your beneficiaries. |
| Charitable remainder trust | For a period of time the trust provides an income stream to the beneficiary and then any remainder goes to a charity. |
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Generation-skipping trust |
Using the generation-skipping tax exemption, a generation-skipping trust permits trust assets to be distributed to grandchildren or later generations without incurring either a generation-skipping tax or estate taxes on the subsequent death of your children. |
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Qualified Terminable Interest Property (QTIP) trust |
Used to provide income to a surviving spouse. Upon the spouse’s death, the assets then go to additional beneficiaries named by the deceased. Often used in second marriage situations, as well as to maximize estate and generation-skipping tax or estate tax planning flexibility. |
| Grantor Retained Annuity Trust (GRAT) | Irrevocable trust funded by gifts you make (grantor). It is designed to shift future appreciation on quickly appreciating assets to the next generation during your (grantor’s) lifetime. |
Consult with a New York trusts and estates lawyer to include a trust as part of your estate plan. Be sure to read our next post, Understanding the Differences Between Revocable and Irrevocable Trusts, to learn about the types of trust instruments that may be included in your estate plan.