Trust Information
SPECIAL NOTE: New Foundations Insurance and Annuity Services does not provide legal or tax advice. Any information on this site is provided for educational purposes and may not apply to your particular needs. You must contact your legal or tax professional for specifics regarding your particular needs.
Simple Will
This is the basic and primary of all estate planning tools. For smaller estates without a large distribution of asset classes, this alone may suffice. However, for larger estates a simple will may not be enough. They can be contested, or even may still be subjected to probate.
Example:
A mother dies leaving a simple will outlining how her estate assets are to be distributed among her four children. She names her eldest son as the executor. In the will, it is stated that her house be sold and the proceeds divided equally between her four children. When the eldest son, the executor, goes to sell the house he needs to get the owner’s signature on the deed of sale. This is a problem as the owner, his deceased mother, is no longer available. He will have to go through a probate court to obtain permission to sell the house as is stipulated in the will.
Living/Revocable Trust
This trust picks up where the simple will leaves off. A trust is created and all estate property titled within the trust. The owner still retains rights and control over the estate assets while they are living. At the death of the owner, the assets are distributed to the heirs according to the instructions of the trust document. A trustee is appointed who is empowered to execute the provisions of the trust. Since the trust is a living legal entity, it solves most probate problems that may arise due to the death of the owner - in the prior section on simple wills, the sale of the primary family residence. Also, provisions of a Living/Revocable Trust cannot be contested.
One important note. By transferring title of all estate assets into a Living/Revocable Trust , you do not solve estate tax problems as many people think. All assets in this type of trust still remain within the estate and are susceptible to estate taxes at the owner’s death.
Irrevocable Trust
This trust is used quite frequently with large estates. Assets gifted to the trust are given away on an irrevocable basis and thereby removed from the owner’s estate. Any growth on these assets are now outside the estate and not exposed to estate taxes.
This is especially important when purchasing large insurance policies to handle estate taxes. The premiums for the life insurance policy are gifted to an Irrevocable Life Insurance Trust (ILIT) and the trust purchases the policy on the owner. This way, the $5,000,0000 death benefit of the life insurance policy is kept outside of the estate and thereby received income and estate tax free.