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Building
Trusts to Help Protect Your Legacy
Did you
know that nearly 25 percent of people over 50 have a living trust?1
As part of a well-defined estate conservation plan, trusts can help preserve
more of your assets for your loved ones and avoid the delays and costs of
probate.
 A
trust is a legal arrangement under which one person or institution controls
property given by another person for the benefit of a third party. If you
currently don’t have a trust or you’re unsure whether your trust offers the
right protection, you may want to learn more about A-B (bypass) trusts,
irrevocable trusts, and life insurance trusts. Working together, these three
types of trusts can help safeguard your legacy.2
A-B
Trusts
A living trust with a properly structured A-B provision can allow married
couples to exempt twice as much of their estate from taxes as they could without
a bypass trust. When one spouse dies, the trust is split in two. The assets of
the surviving spouse are transferred to the A trust, while the assets of the
deceased spouse go to the B trust. Each trust becomes a taxable entity entitled
to the current estate tax exemption ($1 million in 2002 and 2003).3
Irrevocable
Trusts
When you establish an irrevocable trust, you relinquish control of your assets
while you’re living. Although irrevocable trusts can protect your estate from
taxes on assets valued above the estate tax exemption, you may want to consider
this option carefully because it means giving up control of your assets during
your lifetime.
 Life
Insurance Trusts
If relinquishing control of your assets doesn’t appeal to you, consider
establishing a life insurance trust to pay the estate taxes on assets valued
above the estate tax exemption amount. A life insurance trust holds an insurance
policy in an irrevocable trust, so the policy itself is not taxable. It can help
give your beneficiaries the cash they may need to pay estate taxes, perhaps
eliminating the need to sell assets.4
As with all the elements
of your estate conservation plan, trusts should be reexamined regularly so that
new assets can be added and beneficiaries updated.
1) AARP, 2000
2, 3) The use of trusts involves a complex web of tax rules and regulations. You
should consider the counsel of an experienced estate planning professional and
tax attorney before implementing such strategies.
4) The cost and availability of life insurance depend on factors such as age,
health, and the type and amount of insurance purchased. Before implementing a
strategy involving life insurance, it would be prudent to make sure that you are
insurable by having the policy approved. As with most financial decisions, there
are expenses associated with the purchase of life insurance. Policies commonly
have mortality and expense charges. In addition, if a policy is surrendered
prematurely, there may be surrender charges and income tax implications.
©
2002 Emerald Publications
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