TRUSTS

TRUSTS

Definition
1. legal document
  1. Defines assets held within it
    1. Defines how those assets will be managed by a trustee for the benefit of a beneficiary (or beneficiaries)
Types
1. Living Trust
  1. Assets pass to trust while settlor is still living; are revocable
  2. Assets contributed by grantor (settler)
  3. Grantor can be trustee and/or beneficiary
  4. Beneficiary Receives Income and/or Corpus
2. Simple Trust
  1. Must Distribute Income each Year
  2. Distributable Net income (DNI)
    1. Income from Dividends and Interest
    2. Realized Capital Gains not reinvested
    3. Less Expenses
3. Complex Trust
  1. May accumulate and retain Income
    1. Reach Highest tax Bracket Quickly
4. Revocable Trust
  1. Terms of Trust May be Altered
    1. Grantor Trust
  2. Grantor Responsible for Tax on Trust Income
    1. Grantor May Amend or Revoke
    2. Assets Remain in Grantor's Estate
5. Irrevocable Trust
  1. terms of trust may not be altered
    1. May Avoid Estate Tax
  2. Irrevocable life insurance trust (ILIT) is a popular example
6. Testamentary Trust
  1. Setttlor retains control over assets until death
    1. Assets pass through probate court prior to being placed in the trust
    2. does not reduce a grantor's income or estate tax liability
      1. Property passes into the trust by way of the will and must go through the probate court process
      2. Per Stirpes passes to children of deceased beneficiary
      3. If Interstate, administrator rather than executor
Common Objectives
1. Reduce Estate Tax Liability
2. Protect Property in an Estate
3. Avoid Probate in Court

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	Created by Haley Lockwood about 6 years ago