How to Maximize the Benefits of Trusts in Your Estate Planning Strategy
Friday, August 30, 2024
Estate planning is a critical process that allows individuals to manage their assets during their lifetime and efficiently transfer them to heirs after death. A trust is a powerful tool within estate planning, providing flexibility, control, and potential tax advantages. At Riverfront, we partner with The Private Trust Company, an affiliate of LPL Financial.
The Private Trust Company (PTC) is an independent trust company dedicated to the administration of trusts and other family wealth management such as family offices, businesses and foundations.
Riverfront Capital Strategies and PTC together serve you alongside your attorneys, CPAs and accounting professionals, who rely on us to provide a high level of quality service and dedicated expertise across all aspects of trust administration. Our unique model enables you to continue working with the professional advisors you already trust (that's us!!!) to place your interests first.
Today I want to explore the various types of trusts used in estate planning, their purposes, and how they might fit into your overall financial strategy, and to encourage you to utilize the resources and help we offer at RCS.
1. Revocable Living Trust
A revocable living trust is one of the most commonly used trusts in estate planning. The grantor, or creator of the trust, retains control over the assets placed in the trust and can alter or revoke the trust at any time during their lifetime. Upon the grantor’s death, the trust becomes irrevocable, and the assets are distributed according to the trust’s terms without going through probate. This type of trust is popular because it offers flexibility, privacy, and helps avoid the lengthy probate process.
Key Features:
Can be changed or revoked by the grantor.
Avoids probate, providing quicker access to assets for beneficiaries.
Does not provide asset protection from creditors.
2. Irrevocable Trust
Unlike a revocable trust, an irrevocable trust cannot be altered or revoked once it is established. The grantor effectively gives up ownership and control of the assets placed in the trust. Because the assets are no longer owned by the grantor, they are not included in the grantor's taxable estate, potentially reducing estate taxes. Irrevocable trusts can also provide protection from creditors and lawsuits.
Key Features:
Cannot be changed or revoked.
Provides asset protection and estate tax reduction.
Grants limited control over the assets once transferred to the trust.
3. Testamentary Trust
A testamentary trust is created as part of a will and only comes into effect upon the death of the grantor. This type of trust is often used to manage assets for minor children or other beneficiaries who might not be capable of managing the assets themselves. The trust specifies how and when the assets should be distributed, ensuring that the grantor’s wishes are followed even after death.
Key Features:
Created by a will and takes effect after death.
Often used for managing assets for minors or those with special needs.
Subject to probate, as it is part of the will.
Riverfront Capital Strategies and PTC together serve you alongside your attorneys, CPAs and accounting professionals, who rely on us to provide a high level of quality service and dedicated expertise across all aspects of trust administration.
4. Charitable Trust
A charitable trust allows the grantor to donate assets to a charity while receiving tax benefits. There are two primary types of charitable trusts: a charitable remainder trust (CRT) and a charitable lead trust (CLT).
Charitable Remainder Trust (CRT): Provides income to the grantor or other beneficiaries for a specified period, after which the remaining assets are donated to the designated charity.
Charitable Lead Trust (CLT): The charity receives income from the trust for a specified period, after which the remaining assets go to the grantor's beneficiaries.
Key Features:
Supports charitable causes while providing tax benefits.
Can provide income to the grantor or beneficiaries.
Helps reduce estate taxes.
5. Special Needs Trust
A special needs trust is designed to provide for a beneficiary with a disability without jeopardizing their eligibility for government benefits like Medicaid or Supplemental Security Income (SSI). The trust is managed by a trustee who can use the assets to pay for the beneficiary’s needs beyond what government benefits cover.
Key Features:
Protects eligibility for government benefits.
Ensures financial support for a disabled beneficiary.
Managed by a trustee to ensure funds are used appropriately.
6. Spendthrift Trust
A spendthrift trust is created to protect the beneficiary’s inheritance from being squandered or claimed by creditors. The beneficiary cannot access the trust's principal, and the trustee controls distributions. This trust is particularly useful for beneficiaries who are not financially responsible or have significant debt.
Key Features:
Protects assets from creditors and financial mismanagement.
The beneficiary cannot access the principal.
Trustee controls distributions to ensure responsible use of funds.
Our unique model enables you to continue working with the professional advisors you already trust (that's us!) to place your interests first.
7. Generation-Skipping Trust
A generation-skipping trust is designed to pass assets to grandchildren or later generations, effectively "skipping" the grantor's children. This type of trust can reduce or avoid estate taxes that might be incurred if the assets were passed from the grantor to their children and then to grandchildren.
Key Features:
Skips a generation to reduce estate taxes.
Provides for grandchildren or later generations.
May involve complex tax planning.
8. Qualified Personal Residence Trust (QPRT)
A Qualified Personal Residence Trust allows the grantor to transfer their primary or secondary home into the trust while retaining the right to live in the home for a specified period. After this period, the home passes to the beneficiaries. This strategy can reduce the taxable estate by removing the home’s value from the estate while allowing the grantor to continue living in the property.
Key Features:
Reduces the taxable estate by transferring the home.
The grantor retains the right to live in the home for a specified period.
Can provide significant estate tax savings.
Trusts are versatile tools in estate planning, offering benefits like probate avoidance, tax reduction, and asset protection. The right type of trust for you will depend on your individual circumstances, financial goals, and the needs of your beneficiaries. Working with us, the Private Trust Company an experienced estate planning attorney can help you navigate the complexities of trusts and create a plan tailored to your specific needs. By understanding the different types of trusts available, you can make informed decisions that protect your assets and ensure your wishes are honored.
Call us to begin a discussion about the need for preparing for your future!
Remember, our offices are closed Monday, September 2nd for Labor Day.
Blessings for a great weekend! Wreck 'Em Tech!!! ( It's finally college football season! )
Jim
(The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.)
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