The key differences between a bypass trust and a marital trust are: Estate tax treatment - A bypass trust is designed to be estate tax-exempt, while assets in a marital trust are included in the surviving spouse's taxable estate.
A Living Trust is sometimes referred to as a “Family Trust” due to its ability to encompass a family's wealth and property. This name underscores the fact that these trusts are often established to benefit family members, ensuring a smooth transition of assets from one generation to the next.
The term family trust refers to a discretionary trust set up to hold a family's assets or to conduct a family business.
The income distribution deduction determines the amount of any distributions taxed to the beneficiaries. For this reason, a trust or decedent's estate is sometimes referred to as a “pass-through entity.” The beneficiary, and not the trust or decedent's estate, pays income tax on their distributive share of income.
Family trusts are a type of living trust, and they can be revocable or irrevocable depending on your wishes. For starters, a living trust is one that takes effect during your lifetime. A revocable trust can be altered or terminated at any time, while an irrevocable trust is permanent.
You designate a trustee who will manage the assets for your benefit and the benefit of your chosen beneficiaries. The key distinction is that you retain full control and ownership over the trust and its assets while you are living.
Rigidity: Family trusts are often inflexible, making it difficult to alter the terms once they are established. This rigidity can be problematic if family circumstances change, such as in cases of divorce, remarriage or changes in financial status.
A living trust can distribute assets to anyone who is named as a beneficiary when the grantor dies. Living trust beneficiaries can include family, friends, charities, alma maters, pets and others. By contrast, family trusts are designed to benefit only the family members of the grantor.
An irrevocable trust offers your assets the most protection from creditors and lawsuits. Assets in an irrevocable trust aren't considered personal property. This means they're not included when the IRS values your estate to determine if taxes are owed.
Adding Someone to Title as Joint Owner or Joint Tenant. You can add another person on your bank account as a joint owner or your real estate as a joint tenant. The benefit of this type ownership is that when you pass away, the property will pass to the other joint owner without probate.
Selecting the wrong trustee is easily the biggest blunder parents can make when setting up a trust fund. As estate planning attorneys, we've seen first-hand how this critical error undermines so many parents' good intentions.
One type of trust that helps protect assets is an intentionally defective grantor trust (IDGT). Any assets or funds put into an IDGT aren't taxable to the grantor (owner) for gift, estate, generation-skipping transfer tax, or trust purposes.
How to dissolve and close your Family Trust. You must formally wind up (vest) the trust to close down this unused structure. Build this Vesting a Discretionary Trust deed on our law firm's website.
Living trusts can be used to avoid probate, reduce estate taxes, and help protect assets from creditors. Testamentary trusts: A testamentary trust is created in the grantor's will and takes effect after the grantor dies.
Bypass trusts are a powerful tool in estate planning, offering significant benefits such as estate tax reduction, asset protection, and control over asset distribution. However, they also come with drawbacks, including loss of direct control and potential administrative costs.
A family trust is an estate planning tool that gives you control over how your wealth is managed, protected, and transferred from one generation to the next. Setting up a family trust helps you ensure that your wealth is used in a way that aligns with your financial goals and objectives, even once you're gone.
But generally, the trustee is entitled to use trust funds to pay for things like: Funeral and burial expenses for yourself or a trust beneficiary. Expenses related to properties included in the trust, such as repairs or property insurance. Repaying any debts owed by your estate when you pass away.
Trusts offer several advantages, such as bypassing probate, maintaining privacy, and providing more control over asset distribution.
Parents and other family members who want to pass on assets during their lifetimes may be tempted to gift the assets. Although setting up an irrevocable trust lacks the simplicity of giving a gift, it may be a better way to preserve assets for the future.
Once your home is in the trust, it's no longer considered part of your personal assets, thereby protecting it from being used to pay for nursing home care. However, this must be done in compliance with Medicaid's look-back period, typically 5 years before applying for Medicaid benefits.
A legal concept referred to as the “rule against perpetuities” prevents a trust from remaining active indefinitely. California law requires a trust to terminate within 90 years or no later than 21 years after the death of an individual alive at the time the trust was created.
Disadvantages of Family Trusts
If you continue to treat the assets as your own, any trust could be open to challenge as a sham. Additional administration – If you establish a trust, you need to allow for the time and cost involved with meeting the trust's annual accounting and administrative requirements.
The trust remains revocable while you are alive; you are free to cancel it, replace it, or make changes as you see fit. Once you die, your living trust becomes irrevocable, which means that your wishes are now set in stone.
Usually, the deceased spouse's portion of the couple's property, at least up to the applicable exclusion amount ($11.7 million), is put into trust B (the bypass trust). This trust is irrevocable and will pass to the beneficiaries other than the surviving spouse (usually their children).