Trusts are sometimes difficult to understand but acquiring that knowledge can be very beneficial.
When a person learns they may need to set up a trust, the terminology can be challenging but there are some common trust types as the Motley Fool recently discussed in “Navigating the World of Trust Funds: Your Quick Guide.”
The trusts include:
- Revocable Trusts – These are trusts the settlor (the person who creates the trust) can easily dissolve. If circumstances change, assets in the trust can be removed and a different trust can be created.
- Irrevocable Trusts – These trusts cannot be revoked. They often have more estate tax benefits than revocable trusts.
- Credit Shelter Trusts – While not as useful as they used to be, these trusts still offer a good way to avoid some estate taxes. Assets in the trust are held for the benefit of children normally, but a spouse can still use those assets while he or she is alive. The assets are not counted as part of the spouse’s estate for tax purposes.
- Generation-skipping Trusts – These trusts are created for the benefit of grandchildren instead of children. This is normally done for estate tax purposes, but the trusts need to be set up by experts to avoid other tax issues.
- Qualified Personal Residence Trusts – These very specific trusts are a way to pass a home on to heirs while minimizing taxes on the home.
An estate planning attorney can guide you through the world of trusts and suggests the best ones to match your circumstances.
Reference: Motley Fool (Sept. 18, 2016) “Navigating the World of Trust Funds: Your Quick Guide.”