10 Types of Trusts: A Quick Look for the RIA

Have you had the talk?

Your retired clients may be thinking about what happens to their wealth after they’re gone. Have you had an honest discussion about their estate? Family accountants and financial advisors are often the ones who know the most about a family’s dynamics. You’ve probably just about heard it all! Advisors should also work with estate-planning attorneys to ensure their clients have a solid plan in place and that their finances are secure. Today, we’re sharing some helpful information regarding trusts.

10 Common Trusts

Considering the myriad of trusts available, creating an estate plan that works can seem daunting.  It doesn’t have to be. Here’s a look at the basics of 10 common trusts to provide a general understanding. There will not be a quiz at the end.

1. Bypass Trusts. Commonly referred to as Credit Shelter Trust, Family Trust, or B Trust, Bypass 

2. Trusts do just that: bypass the surviving spouse’s estate to take advantage of tax exclusions and provide asset protection.

3. Charitable Lead Trusts. CLTs are split interest trusts which provide a stream of income to a charity of your choice for a period of years or a lifetime. Whatever’s left goes to you or your loved ones.
4. Charitable Remainder Trusts. CRTs are split interest trusts which provide a stream of income to you for a period of years or a lifetime and the remainder goes to the charity of your choice.
5. Special Needs Trusts. SNTs allow you to benefit someone with special needs without disqualifying them for governmental benefits. Federal laws allow special needs beneficiaries to obtain benefits from a carefully crafted trust without defeating eligibility for government benefits.
6. Generation-Skipping Trusts. GST Trusts allow you to distribute your assets to your grandchildren, or even to later generations, without paying the generation-skipping tax.
7. Grantor Retained Annuity Trusts. GRATs are irrevocable trusts which are used to make large financial gifts to family members while limiting estate and gift taxes.
8. Irrevocable Life Insurance Trusts. ILITs are designed to exclude life insurance proceeds from the deceased’s estate for tax purposes. However, proceeds are still available to provide liquidity to pay taxes, equalize inheritances, fund buy-sell agreements, or provide an inheritance.
9. Marital Trusts. Marital Trusts are designed to provide asset protection and financial benefits to a surviving spouse. Trust assets are included in his or her estate for tax purposes.
10. Qualified Terminable Interest Property Trusts. QTIPs initially provide income to a surviving spouse and, upon his or her death, the remaining assets are distributed to other named beneficiaries. These are commonly used in second marriage situations and to maximize estate and generation-skipping tax exemptions and tax planning flexibility.
11. Testamentary Trusts. Testamentary Trusts are created in a will. These trusts are created upon an individual’s death and are commonly used to provide for a beneficiary. They are commonly used when a beneficiary is too young, has medical or drug issues, or may be a spendthrift. Trusts also provide asset protection from lawsuits brought against the beneficiary.

Feel free to share this information with your clients and encourage them to ask questions. Their financial well-being is priority after all. For a list of reputable attorneys, contact us at 770-462-2118. Click here to download helpful resources and here for more statistics.