Independent Living Trusts
A living trust takes effect before you die, while a testamentary trust takes effect only after you die. Two types of living trusts are available -- revocable and irrevocable. If you donate property to an irrevocable trust, the property no longer belongs to you; it becomes part of a separately taxable estate.
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Structure
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A trust is created by a trust document that names the trust, the grantor, the trustee and the beneficiaries. It also contains instructions on how the trustee is to distribute trust assets. The trust document may grant the trustee a certain amount of discretion, such as the authority to invest trust assets. It may identify the initial trust assets. Some states offer forms that can be used to establish a trust.
Revocability
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In every state, a living trust is considered revocable unless there is positive evidence to indicate that the grantor intended the trust to be irrevocable. The most effective way to ensure that a living trust is irrevocable is to expressly state so in the trust document. It is also important that the title to trust property not be held in the name of the grantor. Rather, real estate deeds, auto titles and bank accounts should all be titled in the name of the trust. Finally, the grantor should not exercise control over trust assets; only the trustee has this authority.
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Beneficiaries
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A beneficiary may be an individual or a legal entity such as a corporation or charitable foundation. Assets may be distributed in lump sum or over time. Income-producing assets can be kept in the trust permanently with only the generated income assigned to trustees. For example, a grantor may donate a large sum of money to the trust, authorize the trustee to invest it and assign capital gains to beneficiaries.
Benefits
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The separate taxability of an irrevocable living trust allows a grantor to divide his estate into two portions. This can result in tax savings, but only at the cost of giving up legal title to trust assets. Trust assets are not admitted to probate; when the grantor dies, distributions can continue normally without interference or delay from the probate court.
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References
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