Estates and Trusts
If you are considering what to include in your estate plan, you must not forget to take into account life estates and trusts since these are options that can offer many benefits. Trusts are usually considered if you want to provide a continuing income stream to your surviving spouse and your other beneficiaries, to continue the care and education of your young children, to continue the care of a dependent or incapacitated adult, to minimize federal estate taxes in some situations, and to reduce the state inheritance taxes, while the principal assets of the trust are preserved for future distribution.
While other forms of estate planning can be done on your own, a trust requires outside assistance. It needs the services of a trustee, who has the obligation to manage the operation of the trust, according to the stipulations in the basic trust agreement. Because of their complexity, trust agreements are best drawn up with the assistance of a lawyer.
You can either establish a living trust (inter vivos trust) or a testamentary trust, which is created by a will or formed upon your death. Whether it is living or testamentary trust, its establishment leads to the creation of a separate legal entity, which holds ownership and/or title of the property transferred to it. Because it has now a separate legal entity, Federal Employer Identification Number (FEIN) must be provided to the trust. The trust will also need to file a separate legal and federal income tax if its annual income exceeds a certain amount required by law.
The trust, generally, holds title to all its assets. A trustee (you can appoint a third party, or you can appoint yourself as the trustee in case of living trust) oversees the trust, and is owned by the beneficiary or beneficiaries. A trust resembles a private investment corporation in its functions. The trustee is obligated to maintain accurate records of account and to render a regular report (at least annually) to the beneficiaries-owners on the status of the trust.
You can fund a living trust with your wholly owned assets such as stocks, bonds, cash and real estate. A testamentary trust, on the other hand, can be funded with wholly owned assets or life insurance policy proceeds. To determine the appropriate trust to establish, you may want to seek an advice of an attorney.