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Britt Erica Tunick is an award winning financial journalist who has spent the past 17 years writing about virtually every aspect of finance. She has mastered the art of boiling down complicated financial topics for readers to understand. |
Various types of trusts are available to assist you in maintaining control of your assets during your lifetime, shielding them from probate, or reducing estate and gift taxes. A Look at Some Popular Types of Trusts By Britt Erica Tunick If establishing a trust is part of your estate plan, make sure the type of trust you set up is the right type for whatever your ultimate objective is. Much in the same way that different investment approaches can generate significantly different outcomes, so too can the various types of trusts that exist. Following are a few types of trusts in existence: Living/Revocable Trusts: One of the most common types of trusts included in estate plans is a living trust, also known as a revocable trust. This type of trust is set up by an individual or a couple during their lifetime to house specific assets and transfer their ownership to the trust itself. Once such assets are placed within a trust they are overseen by a trustee, who can be either an individual or an organization. The trustee is chosen by the trust’s creator to oversee the assets on behalf of the assets’ ultimate beneficiaries. With such trusts, the individual that creates the trust has the ability change or cancel the trust at any time during their lifetime. But once a living trust’s creator passes away, the trust becomes irrevocable and can no longer be changed. Such trusts are popular because they allow an individual to maintain control of their assets and to ensure such assets can be used for their personal benefit, even if they eventually become incapacitated. A major benefit of living/revocable trusts is that their assets are shielded from both probate and public record. Irrevocable Trusts: Unlike revocable trusts, assets transferred to irrevocable trusts cannot be reclaimed by the individual who establishes the trust, nor can the terms of that trust be changed unless agreed to by the trust’s ultimate beneficiaries. Such trusts are popular among the extremely wealthy, because transferring assets into irrevocable trusts removes those assets from an individual’s estate, thereby shielding them from estate taxes, or even offering protection from creditors depending on the type of assets in question. Qualified Personal Residence Trusts (QPRT): One type of irrevocable trust is a Qualified Personal Resident Trust, which allows the trust creator to transfer their home to a trust, while continuing to live there and retaining their interest in the residence for a specific amount of time. Such trusts are a popular way of reducing estate taxes, particularly since the retained interest ultimately reduces the residence’s fair market value and the gift tax it will be subject to. |
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