Terms &
Basic Estate Planning Terms and Concepts
Many people have preconceived notions about trusts and believe that they are only for multi-millionaires who wish to leave large trust funds to their children. However, this is far from the truth; trusts can be invaluable tools in the estate plans of millions of individuals.
Trusts are simply an arrangement where one party holds property on behalf of another party. In an estate planning context, trusts are created by the person doing the estate planning (the grantor), who authorizes another person (the trustee) to manage the assets for the benefit of a third party (the beneficiaries). There are many reasons for establishing trusts including tax minimization or providing for the needs of underage beneficiaries.
Some types of trusts that may be useful in estate planning are:
Trusts are simply an arrangement where one party holds property on behalf of another party. In an estate planning context, trusts are created by the person doing the estate planning (the grantor), who authorizes another person (the trustee) to manage the assets for the benefit of a third party (the beneficiaries). There are many reasons for establishing trusts including tax minimization or providing for the needs of underage beneficiaries.
Some types of trusts that may be useful in estate planning are:
Trusts for minorsMany people leave money to their children or their grandchildren in a trust as part of a comprehensive estate plan. This is typically done to ensure the money is there for the children’s benefit while they are younger-for support, education, medical expenses, etc.
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Special needs trustsSpecial needs trusts are tools that enable a person to leave property to an individual with special needs. Many individuals with special needs receive government benefits. If they were to suddenly inherit money, they would be disqualified in most cases from those benefits until the inheritance was spent. Special needs trusts protect those individuals’ government benefits while allowing them to have money for any extras they may need.
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Marital trustsMarried couples sometimes include trusts in their wills or create them during their lifetime for the benefit of their spouse, typically for two reasons: (1) to save taxes, and (2) property protection. Marital trusts can also protect property from a spouse after a remarriage to ensure that the property ultimately goes to the children of the first marriage. For example, a husband with grown children from a previous marriage may decide to let his second wife use his property after he passes, but put it into a trust so that after she passes away it goes to his children.
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Revocable living trustsRevocable living trusts are documents completely separate from wills although they often work hand in hand with wills to carry out the decedent’s wishes. Revocable living trusts are primarily used to avoid probate in states where probate is particularly cumbersome, or in a few other instances, such as when a person owns real estate in multiple states.
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Irrevocable trustsThere are a number of specialized irrevocable trusts that are useful for tax and asset protection planning. These include irrevocable life insurance trusts, grantor trusts and charitable trusts.
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Spendthrift trustsSpendthrift trusts are generally established to protect the beneficiaries’ assets from creditors and spouses.
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An experienced estate planning attorney can help you assess your finances and goals to determine the best vehicles to preserve your wealth and your legacy.
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