Estate Planning Trusts
Trusts can play a vital role in an estate plan, but are also useful tools to achieve various goals that are not necessarily related to estate planning. There are many different types of trust that can be created during life (inter vivos) or trusts that can be created upon death (testamentary) and some trusts are revocable while others are irrevocable. In addition to trusts being tools to control the use and/or disposition of particular property they are also vital tools in negotiating estate tax and generation-skipping transfer tax. Speak with one of our Cambridge estate planning lawyers to learn more about estate planning trusts!
At the very least, a trust is comprised of the grantor/settlor (the person who places assets into the trust), a trustee (the person who manages trust assets in accordance with the trust instrument for the benefit of the beneficiaries), and the beneficiaries of the trust. The grantor/settlor, trustee, and beneficiary could all be different persons, but two “titles” could be held by the same person. For example, a grantor can also be the trustee and a trustee can also be a beneficiary. But it is never possible to have the grantor/settlor, trustee and beneficiary be the same person, without additional individuals to ensure separation of legal and equitable titles.
A trust allows a grantor’s property to be managed by a trustee for the benefit of the beneficiaries. The trustee, however, must manage the property in accordance with the trust document (the declaration of trust), which allow the grantor to place certain restraints on the use of the property. Having a reputable Cambridge estate planning lawyer to speak with can make the entire process easier; call us today at 781-674-2562!
Below are some brief examples of different types of trusts and their purposes:
Irrevocable Life Insurance Trust (ILIT): An ILIT is used if one has a large life insurance policy that could have estate tax implications. This type of trust essentially removes all life insurance policies from estate tax calculation.
Qualified Personal Residence Trust (QPRT): A QPRT is an irrevocable estate planning trust that is used to remove one’s personal residence for estate tax purposes, bus still allow the grantor/settlor to live in the residence for a specified period. A QPRT trust is usually for individuals with large value in the home that could have estate tax implications.
Incentive Trusts: An incentive trust is a trust designed to provide a reward or incentive for a particular accomplishment. Many parents desire to reward their children for obtaining a degree or accomplishing a certain task. An incentive trust would be established to outline the task and provide the “reward” upon its completion. As such, the trust instrument will define the “reward” and the steps the beneficiary must take to receive the reward.
Spendthrift Trusts: A spendthrift trust is a particular trust (or a provision within a trust) that restricts how and when a beneficiary is entitled to the assets of the trust. A spendthrift provision is used to protect the trust assets from the reach of creditors and is also used to prevent the beneficiary from carelessly spending trust assets.
National Firearms Act (NFA) Trust: An NFA trust is a special type of trust specifically drafted to possess, store and transfer firearms that are covered under the National Firearms Act. The trust provides many advantages to owning such items individually.
Since trusts can be very complex instruments that can have legal and tax implications, it is prudent to have an attorney prepare or at least review your trust.
Contact our Cambridge estate planning lawyers today at 781-674-2562 to speak with an estate planning lawyer about the preparation or review of a trust.