How Trusts Can Benefit Your Family

..How Trusts Can Benefit Your Family

Many people perceive trusts as a complex subject better left to their attorney. When stripped of all its “bells and whistles,” however, a trust can be viewed simply as a contract, wherein a grantor agrees to transfer assets to a beneficiary, or multiple beneficiaries, who then receive the assets as stipulated in the contract.

A trustee, who may or may not be the grantor, manages the trust, overseeing investments and ensuring that the stipulated terms of the trust are faithfully carried out.

With an understanding of these fundamental trust building blocks, you can begin to see that trusts are simply very powerful tools designed to help individuals handle a variety of family and estate tax issues. The following list will give you an idea of a few ways in which trusts can benefit you and your family:

Credit Shelter Trust
A credit shelter trust, also referred to as a bypass trust, is a popular estate planning tool used to protect assets from successive estate taxes. While current laws permit an unlimited amount of assets and property to pass to a surviving spouse without being subject to federal estate taxes, children and other beneficiaries must pay taxes for inheritances valued in excess of $3,500,000 in 2009.

A couple taking advantage of a credit shelter trust generally arranges for certain assets to pass into a trust for the benefit of a surviving spouse, rather than passing all assets directly to the spouse. This trust, which would not be considered part of the surviving spouse’s estate – and generally does not exceed the $3,500,000 – may pay the surviving spouse income for life, and then upon his/her death may pass to a beneficiary, such as a child, free of estate taxes if under the exclusion limit. In addition, the gross estate of the surviving spouse, upon his/her death, could also pass to the same beneficiary, up to $3,500,000 that would be free of estate taxes.

Revocable “Living” Trust
A revocable living trust is an estate planning trust that deeds property to heirs, but permits the grantor to retain control over the property during his/her lifetime. Upon the grantor’s death, the property passes to the beneficiaries, avoiding probate, which is the judicial process wherein a court appoints an executor to carry out the provisions of a will.

Many people who have had firsthand experience with the expense, delay, and publicity of probate have sworn never to allow their estate to undergo that process. While the revocable living trust does not provide estate tax savings for the grantor during his lifetime, upon his/her death, the trust becomes “irrevocable,” and the beneficiaries are thus entitled to the tax advantages an irrevocable trust receives.

Irrevocable Living Trust
An irrevocable living trust is an estate planning trust, wherein the grantor does not retain control of assets or property; but, through the transfer of assets or property into the trust, the grantor could reduce estate taxes. An irrevocable living trust may also be used to avoid probate.

Irrevocable Life Insurance Trust (ILIT)
An irrevocable life insurance trust is an estate planning trust that seeks estate tax reduction through the ownership of a life insurance policy. Assets in the trust are generally not considered part of the grantor’s estate. ILITs may be either funded or unfunded.

With a funded ILIT, income-generating assets are transferred into the trust, and the generated income is then used to pay the premiums on a life insurance policy. With an unfunded ILIT, the grantor makes yearly gifts to the trust, and this money is then used to pay the premiums on a life insurance policy.

Charitable Remainder Trust (CRT)
A charitable remainder trust can be a highly effective financial and estate planning tool. It can allow the grantor to: reduce/eliminate capital gains taxes on highly appreciated assets; receive an income stream based on the full, fair market value (FMV) of those assets; receive an
immediate charitable deduction, and ultimately benefit the charity(ies) of his/her choice.

Dynasty Trust
This trust is often used by high net worth individuals who want to pass their wealth to their grandchildren free of one of the most costly taxes in existence – the generation-skipping transfer tax.

Using a trust can be an excellent method of accomplishing your long-term estate planning goals. With the proper legal documents, it can lessen the headaches that may be experienced by family, friends and the charities that you wish to benefit from your financial successes.

Saul M. Simon ( is a registered representative of Lincoln Financial Advisors, a broker/dealer that offers investment advisory service through Sagemark Consulting.


About Maria Paulina Pagano

As a Realtor for the last twenty years and a Monmouth County resident for twenty-four years, I have accumulated extensive and invaluable knowledge of the Real Estate Market and Market Trends. Member of Ocean, Monmouth, & Middlesex MLS.
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