Revocable Family Living Trust

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One of the most popular estate planning instruments today is the revocable living trust.Trusts are used to maintain control and disposition of assets after death, and some can be used to minimize the estate tax impact of property transfers.

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The difference between a revocable and irrevocable trust is whether the trust creator can change or terminate the trust. In the revocable trust, the creator can change the terms and conditions of the trust, or even eliminate the trust altogether. An irrevocable trust, on the other hand, cannot be altered once established.

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Irrevocable Family Trust

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Irrevocable trusts come in many different “flavors”.  These trusts may be written to accomplish a wide variety of objectives and purposes.  Such objectives and purposes range from asset protection to estate tax shelters to protection of government assistance benefits for an ill spouse or a person with disabilities.

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One of the significant uses for an irrevocable trust is asset protection.  Often these trusts are established in advance as a part of a long term care asset protection plan.  The goal is to place assets into a properly drafted irrevocable trust, which minimizes loss of control while maximizing future eligibility for Medicaid and Veterans benefits.

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In this way, you are limiting the erosion of your estate’s assets and ensuring an inheritance to your beneficiaries.

 

Irrevocable Life Insurance Trust

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An ILIT is a type of living trust that's specifically set up to own a life insurance policy. You can transfer ownership of an existing policy to the ILIT after it's been formed, or the trust can purchase the policy directly.

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You can't serve as trustee of the trust, however. The trust must be irrevocable, which means that you must "fund" it, placing the policy into its ownership, and step aside. You must relinquish any right to make changes to the trust or to dissolve it.

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Acting as trustee would give you something called "incidents of ownership," allowing you to retain control over the policy. But your spouse, your adult children, a friend or even a financial institution or an attorney can serve as trustee for you. You can name anyone you like when you form the trust. 

 

Retirement Trust

 

A specially designed trust may be designated as the beneficiary of your IRA or other qualified retirement plans. This cutting-edge planning tool may provide you and your loved ones with numerous, considerable benefits, including: maximization of income tax deferral and wealth accumulation relating to your retirement plans; minimization of estate and generation skipping taxes; guarantee of eventual distribution to your desired beneficiaries though several generations; and spendthrift, divorce and creditor protection for your beneficiaries.

 

A Retirement Plan Trust should be set up separately from your Living Trust and is generally advisable if your IRAs total over $150,000 (both husband and wife combined and including any company retirement plans, such as 401(k)’s).

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           "Strechout” of RMDs

 

Thanks to new IRS rules, the beneficiaries of an IRA may now “stretchout” their taxable, required minimum distributions over their own life expectancies. This means your IRA may compound income-tax free for a much longer period — and literally grow to be worth millions.

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For example, let’s say your IRAs total $150,000 at your death and your beneficiary is age 50 when he or she inherits them. If we assume that the accounts grow at 8% per year, and your beneficiary only takes out the required minimum distributions, at age 80, your beneficiary will have already received about $700,000 of distributions and still have remaining in your IRAs almost $300,000 (which may continue to grow tax-free and be passed on to his or her children)!

 

In other words, as the result of the new IRS “stretchout” rules, your IRAs may well be worth, over time, in excess of $1 Million and may become the largest assets you pass on to your loved ones.

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Realty Trust

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Massachusetts residents are fortunate to be able to take advantage of a vehicle to hold title to their real estate, known as the realty trust.  This Realty Trust is specific to Massachusetts residents.  The Realty Trust is basically a shell, and hides the ownership of your property.  It is common to use your revocable or irrevocable trust to serve as the beneficial owner.

There are two main purposes for putting your home or other real property in a realty trust:

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• Confidentiality — Since the beneficiaries are not listed publicly, the ownership of your property remains unknown to the public

• Ease of Succession — Transactions that involve property held by realty trusts do not have to be recorded with the Registry of Deeds.

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Please note: the realty trust does not confer any protection from creditors, transfer taxes, gift taxes or estate taxes.

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Special Needs Trust

 

A special needs trust is one important element in special needs planning if you have a loved one with disabilities.  It is a specialized legal document designed to benefit an individual who has a disability.  If you have a loved one who has a developmental disability or some other disability, then you can use a special needs trust to ensure that the inheritance you desire to leave him or her will used for his or her benefit.   These trusts are frequently called “supplemental needs trusts” as well.

 

There are two primary purposes for a special needs trust.  The first purpose is to keep assets for the benefit of your disabled loved one from counting as his or her own assets which could disqualify them for programs of government assistance, such as SSI, Medicaid, as well as subsidized housing and vocational rehabilitation benefits. 

 

The second purpose -- and the one that brings peace of mind to the family – is that the person with disabilities will be able to have extra care (supplemental care) over and above what the government provides.  Not only will your disabled loved one live an enhanced quality of life, but he will never have to be alone because the special needs trust can pay for caregivers for a life-time.

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