Contact your trusted advisor for more details on these and other account services.
A Marital Trust typically would be created on your death under the terms of your Living Trust. The trust is designed to benefit the surviving spouse and minimize estate taxes. To achieve the tax benefits, the income from the trust must be paid to the surviving spouse after your death. The surviving spouse may have the right to withdraw part or all of the property, and the trustee may be given the discretion to distribute trust principal to the surviving spouse for certain purposes (e.g., health, education, maintenance and support). The surviving spouse would have the right to designate how and to whom the property in the Marital Trust would be distributed upon his or her death.
Qualified Terminable Interest Property (QTIP):
A QTIP Trust typically would be created on your death under the terms of your Living Trust. This trust is designed to benefit a surviving spouse and minimize estate taxes and possibly Generation-Skipping Transfer Taxes. To achieve the tax benefits, the surviving spouse must receive the income from the trust. In addition, the trustee may be given discretion to distribute principal to the surviving spouse for certain purposes (e.g., health, education, maintenance and support). The major difference between the QTIP Trust and the Marital Trust described in No. 3 is that the grantor -- not the surviving spouse -- would determine how and to whom the trust property is to be distributed on the surviving spouse’s death. For this reason, QTIP Trusts are often used in second marriage situations.
This type of trust would typically be established upon your death under the terms of your Living Trust. It is designed to take advantage of the amount that each of us can give away (during life or at death) without incurring gift or estate taxes. If properly structured, the trust would not be subject to estate taxes in your estate or in the estate of your surviving spouse. Thus, the trust property can pass to your children or other beneficiaries free of estate taxes. The trust usually is structured so the surviving spouse can receive income and principal from the trust. In 2004, the amount that can be given without incurring gift or estate taxes is $1.5 million and is scheduled to increase through 2009
Generation Skipping Trust:
A Generation-Skipping Trust has as its remainder beneficiaries persons who belong to a generation that is at least two generations after yours. For example, a trust that would benefit your child during the child’s life and provide that, upon the child’s death, the assets are to be distributed free of trust to your grandchild is a Generation-Skipping Trust. Because the child does not receive the trust assets free of the trust, the child’s generation has been skipped.
A Dynasty Trust is designed to remain in existence and benefit multiple generations of a family. In some states, the trust must terminate at some point. In other states, such as South Dakota, the trust may remain in existence forever. A Dynasty Trust is a great way to preserve assets for future generations.
Revocable Trust (Living Trust)
A Revocable Trust is so named because you can revoke (i.e., change or cancel) it at any time. It is also called a Living Trust because it allows you to enjoy the benefits of a trust while you are still living. A Revocable Trust provides flexibility. It allows you to keep control over your assets while you are alive and maximizes the amount of your property that will benefit your family (or other beneficiaries) after your death. Because assets properly transferred to your Living Trust during life will, upon your death, avoid the costs, expenses and delays involved with the probate process, a Living Trust can result in more of your assets being available for your beneficiaries sooner, at a significantly lesser cost. You may change the terms of the trust or even cancel it, as long as the trust agreement allows you to do so.
Charitable Remainder Trust
A Charitable Remainder Trust is a special type of Irrevocable Trust that may allow you to receive income tax deductions now, get income from the trust for life or for a number of years, and give the balance to a charity on your death. This type of trust is used to benefit charities while providing income, gift and estate tax savings.
Charitable Lead Trust
A Charitable Lead Trust is an Irrevocable Trust for a fixed term of years or a life. During the term of the trust, a charity is the beneficiary Upon termination of the trust, the remainder or principal is given to non-charitable beneficiaries, such as members of your family. This type of trust is used to benefit charities and also may provide income, gift and estate tax benefits.
Charitable Trust or Private Foundation
This Irrevocable Trust benefits one or more charitable organizations. By establishing a Charitable Trust or Private Foundation, an individual may minimize income, gift and estate taxes.
An Irrevocable Trust is an inflexible, fixed trust. You cannot change or cancel it once it has been signed. Despite this inflexibility, an Irrevocable Trust may be the right choice for many people because it can be used to make gifts to family members in order to help reduce taxes due on an estate at death.
Irrevocable Life Insurance Trust (“ILIT”) (also known as a “Crummey” Trust)
An ILIT is an Irrevocable Trust that owns one or more life insurance policies. If this type of trust owns insurance policies on your life, the proceeds payable on your death generally should not be included in your estate for estate tax purposes. This type of trust is commonly used by business owners to provide liquid funds necessary to pay estate taxes.