DIFFERENT TYPES OF TRUSTS

Estate planning can be a very overwhelming process without the assistance of an attorney. One part of what can make this process complicated is the various types of Trusts that can be utilized depending on your specific situation. While the following types of trusts are not the only ones available, they are a few that may be applicable to your situation.

MARITAL DEDUCTION TRUST

This type of trust is applicable to those who are legally married and is very common for those in that situation. This type of trust allows for assets to be transferred when one spouse passes away to the surviving spouse without any taxes being applied. One benefit of this type of trust is that the deduction is unlimited which means there are no federal estate tax consequences. However, this trust also means that once the surviving spouse passes away, any assets still left in the estate are subject to federal estate taxes which could have negative consequences for anyone these assets are left to.

LIFE INSURANCE TRUST

This specific type of trust is also known as a Crummey Trust. This is one of the few types of trusts that from the point of execution is irrevocable. This means that the trust cannot be changed or revoked by any sort of amendment. The goal of this type of trust is to reduce the gross estate amount of the trustor(s) because they will need to make annual payments into the trust which they then have no access to. For this situation, the trust would be the beneficiary of a life insurance policy while the trustor is the insured. However, one big difference between general life insurance policies and a life insurance trust is that a policy on its own is not considered to be part of the estate upon death while a life insurance trust amount is considered to be part of the estate.

CHARITABLE AND CHARITABLE REMAINDER TRUSTS

This type of trust is also known as a Public Trust. The purpose behind creating this type of trust is to leave money for the benefit of a charitable organization, while also reducing the grantor’s taxes. However, one complication of this type of trust is that the Internal Revenue Code has very strict requirements that must be met in order for a trust such as this one to be considered eligible as a charitable or charitable remainder trust. The main difference between charitable trusts and charitable remainder trusts is that the charitable remainder trust allows a trustor to designate other beneficiaries that are not charitable organizations where the remainder of the trust estate is given to the designated charity after the last beneficiary passes away whereas the charitable trust does not allow for this.

SPRINKLING AND SPRAY TRUSTS

This type of trust allows for the Trustee to have discretion regarding the distribution of the estate balance to the beneficiaries. The benefits of this type of trust includes the ability to use it as an “emergency fund” in the sense that if an unseen event occurs for a beneficiary and they require monetary assistance, the trustee can distribute some of the balance they are allotted to them. Another benefit includes the ability for the trustee to distribute a share of an estate balance to a beneficiary over time which is beneficial for someone who may be in a lower tax bracket so they can avoid a skyrocketing of their income tax on the trust assets they receive.

CONTACT THE LIBERTYVILLE TRUST LAWYERS AT JOHNSTON TOMEI LENCZYCKI & GOLDBERG, LLC TODAY

Johnston, Tomei, Lenczycki, & Goldberg, LLC is an established Libertyville law firm experienced in drafting many different types of trusts. We will assess your situation and create the trusts that are necessary to meet your goals. Contact us for further details or to schedule your initial consultation. Our first meeting is always free.