When creating your estate plan, two of the most popular are the irrevocable and revocable living trust options. However, there are others that can be beneficial to you and your estate, as well. Get to know some of the most popular types of trusts included in estate plans here.
Stand Alone Retirement Trust
The standalone retirement trust is usually a separate document from the revocable living trust and is used to manage your retirement accounts. A properly drafted SRT provides multiple benefits, but primarily, the SRT allows your IRA assets to be stretched over the life of your named beneficiary. Absent the stretching, your IRA would have to be paid out either immediately or within 5 years of your death. Stretching allows your beneficiaries to defer the income tax owed after receiving distributions from your IRA.
If a significant portion of your assets are held in a retirement account, you should strongly consider a stand alone retirement trust.
Intentionally Defective Grantor Trust
Generally speaking, assets in a revocable living trust are included in the trustor’s gross estate for estate tax purposes, while assets in an irrevocable trust are not included in the trustor’s gross estate. Further, income tax owed on income produced by assets held in a revocable trust are typically paid by the trustor, and income tax owed by an irrevocable trust are typically paid by the trust. Current tax rates for trusts are at about 40% for all income over $12,000 annually. Individual tax rates are much lower.
This type of trust combines these theories. Assets held in an Intentionally Defective Grantor Trust (IDGT) are not included in the trustor’s gross estate for estate tax purposes, and the trustor pays the income tax on income produced by assets held in the IDGT.
Although complex, these IDGTs are appropriate in a wide array of circumstances.
Special Needs Trust
The special needs trust, also called a supplemental needs trust, is a specialized type of trust that allows your disabled beneficiary to use the property held in the trust for their benefit, while receiving government benefits.
This is a special type of irrevocable trust that is offered under Common Law. They are designed to help those with physical disabilities or who are mentally challenged.
Extreme caution must be used in drafting and administering SNTs as a mistake, even if made innocently, could jeopardize the beneficiary’s eligibility for government benefits.
The gun trust is typically used to help ensure you remain compliant with the local, state and federal laws that are applicable to specific firearms. These types of trusts are often referred to as NFA gun trusts because they are used for the protection of weapons that are covered under the National Firearms Act.
Do you have a beloved pet? Do you want to ensure they are cared for after you pass away? If so, you need to create a pet trust. This is a legal arrangement that ensures a pet receives care after you die.
With a charitable trust you can set aside assets for one, or several, charities. There are two main types of charitable trusts, which include:
- Lead Trusts: This trust makes annual payouts to charities first, and once it is terminated, the payout goes to a noncharitable beneficiary, such as a family member.
- Remainder Trusts: With this trust you donate non-income producing or highly appreciated assets that make an annual payout to you or another noncharitable beneficiary for the trust’s term. Once the time period has passed, the remaining assets and appreciation go to the charities you have selected.
When creating your estate plan, be sure to keep the different types of trusts in mind, as they offer a wide array of benefits you may want to take advantage of. A professional estate planner like the KC Estate Planner can help you make the best decision for you and your fam