A trust is a financial agreement that transfers assets into the care of a third party. Trusts are frequently used to reduce the size of an individual’s estate and lower the amount of taxes owed in the event of their death. Your financial planner can help you set up a trust that will ensure your assets are passed to spouses, children, or charities exactly as you desire in the future.
Irrevocable Life Insurance Trust
An irrevocable life insurance trust allows the benefits of your life insurance to pass to named beneficiaries after you die. When you create an irrevocable life insurance trust, you transfer ownership of your life insurance policy to the trust, removing it from your estate—and the estate taxes paid upon your death. You will still maintain close control of both the beneficiaries named and the conditions under which they can receive the benefits of the trust.
Credit-shelter trusts, also called bypass trusts or family trusts, can be used to hold a portion of your assets up to the estate tax exemption cap. The remainder of your estate may then be passed to your spouse tax-free. Even if the money in your credit-shelter trust continues to grow, it will not incur estate taxes. This strategy allows you and your spouse to effectively increase the amount your beneficiaries will receive upon the other’s passing.
Generation-skipping trusts, or dynasty trusts, are frequently used to transfer assets or their benefits to your grandchildren under the conditions you have specified. This type of trust can provide income to your children directly, but only under circumstances in which they use that income for the direct benefit of the recipients you have named.
Smart estate planning will minimize estate taxes and maximize the benefits you leave to your family. If you’d like to learn more about your trust options or receive help with estate planning in Tucson, you can reach an experienced retirement planner at Financial Directions, LLC by calling (520) 408-7777 or visiting our website to contact us online.