Trusts play a crucial role in estate planning, offering various benefits and options for individuals to protect and manage their assets. The primary purpose of a trust is to ensure that assets are handled according to your wishes and distributed efficiently to the indented beneficiaries. Trusts also provide opportunities to minimize taxes, avoid probate, maintain privacy, and offer flexibility in managing your estate.
Continuing off our last post about why you should consider using a trust in your estate planning strategy, below are some common types of trusts used in estate planning.
1. Revocable Living Trust
A revocable living trust, as the name suggests, can be modified or revoked by the grantor at any time during their lifetime. This type of trust allows the grantor to retain control over their assets while providing for the seamless transfer of those assets to the beneficiaries upon their death, without the need for probate.
2. Irrevocable Trust
Unlike a revocable trust, an irrevocable trust cannot be amended or terminated by the grantor once it is established, except under certain specified circumstances. By placing assets in an irrevocable trust, the grantor effectively removes them from their estate, potentially minimizing estate taxes and protecting the assets from creditors.
3. Testamentary Trust
A testamentary trust is established through a person's will and comes into effect after their death. This type of trust allows the grantor to control the distribution of their assets beyond the grave, providing for beneficiaries who may require more specialized management or protection, such as minor children or individuals with disabilities.
4. Charitable Remainder Trust
A charitable remainder trust allows the grantor to contribute assets to a trust while retaining an income stream during their lifetime. The grantor will receive an immediate income tax deduction for a gift to the trust. After the grantor's death, the remaining assets are transferred to a charitable organization. This type of trust offers potential tax benefits while providing support to a cause or charity that the grantor holds dear.
5. Special Needs Trust
A special needs trust also known as a Henson Trust, is designed to provide financial support and security for individuals with disabilities without jeopardizing their eligibility for government benefits. This trust ensures that the beneficiary's needs are met while preserving their ability to receive government assistance.
6. Spendthrift Trust
A spendthrift trust is established to protect the beneficiary's assets from their own imprudent spending habits or potential creditors. This type of trust restricts both the beneficiary's ability to access the principal and the ability of creditors to seize the assets, providing a level of security.
7. Marital Trust
A marital trust also known as a ‘A-B Trust’ or ‘Bypass Trust,’ allows a spouse to pass assets to their surviving spouse while minimizing estate taxes by utilizing both spouses’ tax exemptions. Each spouse places assets in the trust and naming any other suitable person as the final beneficiary. This trust splits into to separate entities when one spouse dies.
8. Generation-Skipping Trust
A generation-skipping trust enables individuals to transfer assets to their grandchildren or subsequent generations while bypassing the estate taxes that would apply if the assets were transferred directly to their children and then their children after.
9. Family Trust
A family trust is created to hold and distribute family assets, promoting efficient management and potential tax benefits for multiple generations.
When it comes to estate planning, trusts offer a wide range of options to suit individual needs and circumstances. No matter the type of trust chosen, it is essential to work closely with a trusted legal professional to ensure that the estate plan is properly executed and meets all legal requirements. By incorporating trusts into your estate planning, you can provide peace of mind for yourself and your loved ones, ensuring that your assets are managed and transferred according to your wishes. Plan ahead, protect your legacy, and secure the future of those you hold dear through the power of trusts.
If you have questions or would like to set up your trust, please contact Carson Law and one of our lawyers would be happy to help.
905.336.8940 x 1000
info@carsonlaw.ca