Trusts are estate-planning tools that can supplement Wills, help in avoiding probate, and can also help manage property during one’s lifetime. A trust manages the distribution of a person’s property by transferring its benefits and obligations to different people. Maintaining assets in a trust often makes it easier to minimize taxes and leave a larger inheritance.
A trust is also a way to provide a steady income to the trust beneficiary over time (as opposed to distribution in a lump sum), thus reducing the beneficiary’s tax burden, allowing the trust to grow through investment, and keeping assets free from creditors of the trust beneficiary. Trusts can also be established for the benefit of charitable organizations.
There are many different types of trusts, including:
Revocable trusts. These are used to manage property during lifetime and avoid probate upon death. As the name implies, a revocable trust can be revoked during one’s life so long as the Grantor is mentally capable.
Irrevocable trusts. These are used for estate and gift planning, typically to purchase and hold life insurance.
Testamentary trusts. These are created under an individual’s Will and are used for estate planning.
Charitable remainder trusts. These can provide the Grantor and spouse with an income stream, while at the same time creating an income tax deduction on interest in the charitable remainder trust.
Charitable lead trusts. These allow a charity to receive an income stream. The Grantor receives an income tax deduction and remainder interest upon termination of the trust.