As a comprehensive estate planning attorney, Ray advises clients on the best means to meet their financial and estate planning objectives. For many families, doing so involves the use of trusts. Trusts are legal entities created and designed to hold, manage and distribute one’s property with respect to the trust’s named beneficiaries. Trusts are extremely useful under a variety of circumstance, including providing for a surviving spouse during his or her lifetime while ultimately preserving assets for children and, in the case of high net worth families, for minimizing federal and/or Connecticut estate and gift taxes. Additionally, trusts are not included as part of the probate process, thereby affording the opportunity to keep confidential many details of a person’s estate, unlike the public probate process that is required for wills.
Types of Trusts
There are many types of trusts which may be used as part of a client’s comprehensive estate plan, depending on the client’s individual circumstances, desires and needs. These include the following:
- Revocable trusts — The creator (grantor) of a revocable trust is able to retain complete control of the assets placed in the trust during his or her lifetime, while maintaining the ability to revoke or revise the trust at any point during such time. Upon death, a revocable trust becomes irrevocable. Revocable trusts are also commonly referred to as “living trusts” and “revocable living trusts.”
- Irrevocable trusts — An irrevocable trust is just that – irrevocable upon creation. Assets transferred by the grantor to an irrevocable no longer legally belong to the grantor. There are different types of irrevocable trusts available for estate planning purposes, again depending on each client’s particular circumstances. Generally, however, irrevocable trusts are included as part of the overall estate plan in order to minimize estate and gift taxes at both the federal and state level.
- Credit shelter trusts — Also called a bypass or family trust, and formed under the terms of a revocable trust, a credit shelter trust is designed to enable a grantor to hold in trust property in an amount up to the federal estate tax exemption limit ($11.4 million for 2019) for the benefit of the grantor’s children and grandchildren, while still allowing for limited support for a surviving spouse.
- Qualified terminable interest property trusts — Commonly referred to as a “QTIP,” and formed under the terms of a revocable trust, a qualified terminable interest property trust allows a grantor to ensure that assets will ultimately be left for his or her children and grandchildren upon the death of a surviving spouse, while still providing for the surviving spouse’s lifetime needs. This is especially useful in second marriage situations.
- Generation-skipping trusts – A generation-skipping trust enables grantors to transfer assets to beneficiaries at least two generations below them (such as grandchildren) while minimizing generation-skipping taxes. It can be an excellent way for grantors to provide a legacy to their grandchildren.
- Qualified personal residence trusts – A qualified personal residence trust, commonly referred to as a “QPRT,” allows a grantor to transfer the value of his or her primary residence or a vacation home to one or more beneficiaries in a manner that reduces overall estate and gift taxes. While doing so, the QPRT allows the grantor to continue living in and using the home for a term of years specified in the trust document.
- Irrevocable life insurance trusts – An irrevocable life insurance trust, commonly referred to as an “ILIT,” allows a grantor to remove the value of a life insurance policy from his or her taxable estate, thereby leaving the total proceeds of the policy tax-free to the trust’s designated beneficiaries, regardless of the value of the policy.
- Special needs trusts – A special needs trust allows a grantor to provide financial support to a family member with a disability or special needs, while maintaining the beneficiary’s ability to receive public benefits from governmental programs.
These various types of trusts provide clients with significant flexibility when putting in place their estate plan. The type of trust or trusts used in a client’s estate plan depends, of course, on what is most appropriate given their overall family and financial situations, goals and concerns. Oftentimes, a revocable trust is utilized in conjunction with a “pour-over will” (a will which transfers or pours the property passing thereunder over to the revocable trust), with the provisions of the trust carrying out the client’s wishes as regards the management and distribution of the property for the benefit of the trust’s named beneficiaries. Such provisions often provide for the creation of a credit shelter trust and/or qualified terminable interest property trust so as to minimize estate taxes and/or provide for specific family situations. For significantly larger estates where additional tax planning is warranted, utilizing one or more irrevocable trusts as part of the overall estate plan may also be appropriate.
When working with his clients to develop their estate plans, Ray thoroughly discusses with each of them the appropriate trust options and provides them with a thorough understanding of the benefits, as well as potential downsides, of each. In so doing, Ray is able to effectively counsel and assist his clients in establishing the most effective and comprehensive estate plan given their individual needs and desires.