Common provisions can be incorporated into any trust, depending on the type of beneficiaries, the trust's purpose, the trust's assets, the measure of control the trustee and beneficiaries have over trust assets and how much control the grantor has over the trust.

Common Provisions
Bypass Trust, Credit Shelter Trust, Family Trust Or A/B Trust	Certain assets remaining in the surviving spouse's estate may be subject to estate tax upon the surviving spouse's death. Ensures that both spouse's applicable exclusion amount is used. Is funded at the death of the first spouse typically with an amount less than or equal to the maximum applicable exclusion amount.
Qualified Terminable Interest Property Trust (QTIP Trust)	Helps protect children from a prior marriage from being disinherited after your death by a subsequent spouse. Reduces or eliminates federal estate taxes using the unlimited marital deduction provision of the federal estate tax law. Protects your estate if your spouse remarries after your death. You place property in a QTIP trust, which qualifies for the unlimited marital deduction. When you die, your surviving spouse does not inherit your property, but receives income from the trust at least annually. When the surviving spouse dies, the value of assets remaining in the trust are taxed in that individual's estate and the remaining assets are distributed to beneficiaries named in the trust — usually children from the grantor's previous marriage.
Special Needs Trust, Supplemental Needs Trust	Allows you to leave money or other assets for a disabled family member without jeopardizing eligibility for government benefits. Can pay for needed disability-related expenses not covered by Social Security and/or Medicaid. Can ensure that the disabled individual receives money for education, counseling, medical attention or other expenses not covered by public assistance.
Grantor-Retained Income Trust (GRIT)	An irrevocable living trust designed to reduce gift taxes and remove highly valued assets from your taxable estate. You receive income from assets placed in the trust for a set period; remaining assets pass to your heirs at the end of the term. Assets may include your personal residence or other income-producing assets. To benefit from this type of trust, you must live beyond the term of the trust so that the assets are given to your named beneficiary and removed from your taxable estate.
Spendthrift Trust, Minor's Trust	Useful if your heirs will be unable to manage your estate because they are too young or irresponsible. The trust can specify investment objectives that the trustee must follow. Allows you to potentially protect assets for the beneficiary in the event of a divorce or lawsuit judgement. It also establishes guidelines for distribution.
Other	An Irrevocable Live Insurance Trust (ILIT) often makes sense if your estate value is more than the current maximum exclusion amount. A Generation-Skipping Trust (GST) transfers property to second-generation beneficiaries, usually grandchildren, without the trust proceeds becoming part of your children's estates (GST taxes may apply). A Qualified Domestic Trust (QDT) can provide for a spouse who is not a U.S. citizen. A Charitable Remainder Trust (CRT) lets you donate an asset to a trust and continue using the asset or receiving income from it while you are living. A charity receives the asset after a specified period. A Charitable Lead Trust (CLT) provides income from an asset to a charity; and you reclaim the principal at the end of a set period. A Qualified Personal Residence Trust (QPRT) places a residence in a trust to benefit the grantor's spouse and children or a charity.

Selecting A Trustee. A trustee manages property in a trust according to your instructions. The trustee can be an individual, an institution such as a bank or trust company or a combination as co-trustees. You should name a trustee and several successor trustees to avoid having a court-appointed replacement should your trustee be unable to serve. If your trustee is a beneficiary of the trust, consider restricting the trustee's power to use trust assets for personal benefit.

Whom Should You Choose?
The individual should be willing to serve and have no conflict of interest with your trust and its beneficiaries. The trustee should be capable of managing assets effectively and making sound investment decisions. Your spouse may be the logical choice if the trust is created to benefit your children. Consider whether a friend or family member will be able to make appropriate and impartial decisions in accordance with your wishes. A professional trustee, such as the trust department of a bank or trust firm, may offer more impartiality, stability and business and investment knowledge, but will be less familiar with you and your family and may charge higher fees. When managing a living trust, keep investment advisers, accountants and bankers involved in your decisions. After your death, they will be familiar with your goals as they advise your trustees. Naming co-trustees (a friend or family member and a professional) may be advantageous.

Can A Trust Save You Money? Trusts can potentially save on estate taxes, probate and other expenses, but they may not be the least expensive method of estate planning for you. Costs depend on the size and complexity of your estate, the amount of your estate and inheritance taxes, attorney fees, probate costs and other factors.

Trusts usually cost more to create than simple wills.
You or your heirs may need to pay for professional trust management, generally a sliding scale annual fee based on the current market value of your trust's assets.
Some trusts must file annual federal income tax returns.

Do not use a trust as a substitute for a will.

Next: Probate

Updated Thursday, May 13, 2010

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