When Missouri residents are considering their estate planning options, they are prone to focusing on the simplest method to pass their property onto loved ones: a will. However, there are other ways to protect assets and pass property to heirs. These can be as or more effective, depending on the goals and circumstances. Before moving forward with a trust in lieu of other estate planning alternatives, it is wise to understand the main types of trusts available.
The five types of trust that are commonly used
People considering trusts can choose from a revocable trust, an irrevocable trust, a grantor retained annuity trust, an irrevocable life insurance trust, or a charitable remainder trust. With a revocable trust (also referred to as a living trust), the person can change or cancel it whenever they choose to. The assets will be placed in the revocable trust, the person can retain income earned, as well as maintaining control. When the person dies, the assets go directly to the trust’s beneficiaries and no probate will be required. These are taxable.
The irrevocable trust is like the revocable trust and only differs, as the name implies, by it not being modifiable and cannot be terminated unless the beneficiaries agree. Once assets are transferred to the irrevocable trust, they will not be part of the person’s estate, so there will be no estate tax. A grantor retained annuity trust (GRAT) is for those who have items like stock that are expected to become more valuable. It can be put into a GRAT allowing an annuity for the person and then being distributed to the beneficiaries without being taxed.
The irrevocable life insurance trust (ILIT) is funded via a life insurance policy and is in the name of the owner and its beneficiary. At the time of death, the death benefit is collected by the trust and then paid to the beneficiaries. There is no income tax. Finally, the charitable remainder trust (CRT) allows the person to have partial tax deductions for what is contributed to the trust. He or she can derive income from it and when it ends, the assets are distributed to charities or non-profits.
Setting up a trust may require legal help
Although it might sound complicated, people who are concerned that a will is insufficient to suit their needs should weigh the applicability and options for a trust. Trusts can avoid probate, be more cost-efficient, have a trustee to oversee the assets, avoid the estate tax and more. For help with a trust and deciding if it is suitable for a person’s situation and goals, a firm with experience in trusts and estate planning can be helpful.