Using Trusts To Protect Your Estate: An Easy Guide

Guest Post

Unfortunately, many people consider trusts a rich person’s domain. It’s actually easy for anyone to benefit from a tax-saving trust (and avoid probate).

How Trusts Work

An owner of an estate can protect their assets in a trust by handing over the legal title to a trustee. This is to benefit one or more people detailed in the trust (the beneficiaries). There are two types of trusts: revocable/irrevocable.

Revocable Trusts

A revocable trust can be…you guessed it…revoked. The government then considers this fair game for taxation. You may have to pay estate taxes on any assets that are left behind upon your death. During your lifetime, you might have to shell out for income taxes on any revenue you make inside your revocable trust.

Irrevocable Trust
All assets are permanently removed from an estate and transferred into a trust. Usually, these assets are exempt from estate taxes, as they aren’t considered part of the grantor’s estate, upon their death. Many revocable trusts become irrevocable upon the grantor’s death or mental disability.

The Trustee’s Role

The grantor names a trustee that handles most things, as well as manages the portfolio. Often, the grantor can make all of the big decisions alongside the trustee, or the trustee can have full power over the assets. The trustee is often a friend, relative or accountant, but there are plenty of specialists that can manage your trust.

Different Trusts

It’s really worth picking out your trust carefully, as different trusts cater for different needs. There are plenty to choose from, so do some research.

The Living Trust

You are both the trustee and the beneficiary of the trust, while you’re alive. This means that you have control of all your assets until you die. When you pass away, your designated successor will share your assets by following the terms of the trust. This avoids will-related probate. Speak to a solicitor about will-related probate. In the event that you become incapacitated during your lifetime, your successor or co-trustee will take the reins.

Qualified Personal Residence Trust

You can remove a residence from your estate and into a trust with conditions applied. For example, a holiday home can be visited according to your terms, but still belongs to the trust and its beneficiaries. Gift tax is reduced because you still have rights to the property.

Generation-Skipping Trust

This trust is used to give money to your grandchildren. There is a generation-skipping tax exemption (of up to $5.12 million). It’s similar to the federal estate tax exclusion.

Charitable Lead Trust

You might want to be a force for good after you die and leave your assets to a charitable association. A trustee can sell anything donated and set-up an annuity that will be paid to you and your heirs until the end of your life expectancy. Any remaining assets go to charity.