Advanced Trusts: 4 Ways to Protect Your Estate

Traditionally, when we talk about estate planning tools, we focus on revocable trusts—an incredibly important and versatile wealth management tool. But that’s not the end of the story. In some cases, an irrevocable trust may be more appropriate for your needs. Today, we look at four types that can come in handy.

1. Irrevocable Life Insurance TrustA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process. (ILIT). An ILIT is a trustA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process. that owns and controls your life insurance policy or policies. Think of it as a “middleman” that pays the premiums and distributes the proceeds. The upside of ILITs is that they shelter your beneficiaries from state and federal estate taxes owed on the insurance payout after your passing.
2. GrantorThe creator of a trust who owns the assets to be transferred. Retained AnnuityA financial instrument that pays the holder a guaranteed stream of payments. The annuity is funded by either a lump sum (one-time) or a series of deposits. Once funded, the sum is invested by the insurance company who sold the annuity (the accumulations phase). After a certain trigger (for example, the holder’s retirement or reaching a certain age) payments begin to be issued to the holder (annuitization phase). Annuity payments may be fixed or variable in both amount and in length (some pay out for a designated span of years, others until the holder’s death). Trust (GRAT). GRATs help large estates manage the generation-skipping transfer tax exemption—$12,060,000 in 2022. More specifically, GRATs allow the grantorThe creator of a trust who owns the assets to be transferred. (the person funding the trust) to direct certain assets into an irrevocable trust and freeze their value, removing the additional appreciation from the grantor’s estate and minimizing estate or gift tax liabilityLiabilities are calculated by adding up your existing debts (mortgage, car loans, student loans, credit cards, etc.). when the assets are passed down to heirs.
3. Qualified Terminable Interest Property (QTIP). QTIPs can provide a surviving spouse with a lifelong income stream and allow the grantor to specify how the trust’s assets will be distributed when the surviving spouse passes away. But keep in mind: The income from the irrevocable trust flows to the surviving spouse free of tax thanks to the marital deduction, but the beneficiaries of that trust will ultimately pay estate taxes on the inheritance.
4. Charitable Remainder Trust (CRT). Charitable bequests can reduce your taxable estate, but what if you need the tax deduction now? Enter the CRT—an irrevocable trust that potentially reduces your taxable assets and generates a predefined income stream for the donor or other beneficiaries, with the remainder of the donated assets going to your favorite charity at a specified time in the future. When you transfer cash or other assets into a CRT, you receive an immediate income tax charitable deduction based on the present value amount in the trust that will ultimately go to the named charity.

These advanced trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process. require some assistance to set up. If you have any questions about securing your legacy, please do not hesitate to contact us—after all, we are The Planner You Can Talk To.

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.