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Schannep Investment Advisors, Inc.
Your future is why we're here.
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A Trust Primer
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Estate planning often can involve the creation
of a trust – a legal entity created to hold assets for the benefit of
certain persons or entities. Trusts are managed by trustees who often hold
title on behalf of the trust. The terms trustors, settlers or donors refer
to the founders of the trusts, who establish them through a written
declaration spelling out the terms and conditions of conduct. Although the
assets in a trust are usually given by its creators, others may add to them.
During the life of the trust, profits and sometimes a portion of principal
(called “corpus”) may be distributed to beneficiaries who receive the
trust’s remaining assets at a future time, such as on the death of the last
trustor. A trust may take the place of a will – which avoids
court-supervised probate.
Here are capsule explanations of trusts common to estate planning:
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CHARITABLE TRUST
A trust created to dispense charity or provide social benefits. A
charitable remainder trust names beneficiaries who receive income for a
period of time, after which the principal passes to charity. A charitable
lead trust names a charity as beneficiary for a period of time, after
which named individuals succeed as beneficiaries.
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IRREVOCABLE TRUST
A trust that cannot be revoked by the trustor after its creation except
upon the consent of all the beneficiaries. In an irrevocable life
insurance trust, the principal consists of a life insurance policy or its
proceeds.
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REVOCABLE LIVING TRUST
A trust created while the trustor is alive that can be changed during
his/her lifetime. Living trusts also are called inter vivos trusts.
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QTIP TRUST
A trust to hold qualified terminable interest property for purposes of
taking the marital deduction. It allows the first spouse to die to specify
who will receive any assets after the surviving spouse dies. It also
defers estate taxes until the death of the second spouse.
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TESTMENTARY TRUST
Created in the trustor’s will and effective upon his or her death. A
marital – or AB – trust, is a testamentary trust that names the surviving
spouse as a beneficiary. Other variations – called bypass trusts, bypass
shelter trusts, credit shelter trusts or shelter trusts – are designed to
reduce the surviving spouse’s taxable estate by permitting the first to
die to leave the estate to a trust whose beneficiary is the surviving
spouse at whose death any remaining assets go the children or other
descendants. |
The use of trusts involves a complex set of tax and
legal considerations. You should consult with an experienced estate
planning professional before implementing such strategies.
( Return to
Investment Primer Index )
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Schannep Investment Advisors is a registered investment
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Inc.
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