Estate and Trust Entities

Below is a summary description of the most common types of Estate & Trust Entities that exist. Each has its specific tax implications; there are approximately 80 types of trusts, please contact us for more information.

Decedent's Estate

This is the Estate of a deceased person. It exists as an Entity until all debts are paid and any assets distributed to the heirs and beneficiaries of the decedent. Any income earned from the assets of the Estate during the period of administration is subject to tax.

Simple Trusts

This type of trust is required to distribute all of its income during the tax year in which it was received by the Trust. Only income can be distributed to beneficiaries, if any distribution of corpus is made in any tax year, the Trust will lose its classification. This type of trust does not provide for charitable contributions.

Complex Trusts

A complex trust can perform all the activities that a Simple Trust cannot, including:

  1. Retain income
  2. Provide for Charitable Contributions
  3. Distribute Corpus

Living (Grantor) Trust

This type of Trust is where the creator (grantor) retains some power over income and/or corpus of the Trust. This type of Trust is not recognized as a separate taxable entity. An information return may be required to be filed. This type of trust is a Living (or inter vivos) Trust as it is formed while the creator is still alive. This type of trust can be revocable or irrevocable.

  1. Revocable – changes can be made to the trust arrangements at any time while creator is alive.
  2. Irrevocable – changes cannot be made, once setup and control of assets is given up by creator.

Testamentary (Trust under Will) Trust

This type of Trust is established under a will and is activated upon the death of the creator. Assets under this type of Trust are subject to the probate court process.

Irrevocable Life Insurance Trust

This type of Trust is setup to own the life insurance policy(ies) of the creator. Upon death of the creator the life insurance proceeds are paid to the Trust and distributed as per Trust instructions.

What are the Benefits of a Trust?

Benefits depend on the Type of Trust, here is a few:

  1. To preserve & protect Assets
  2. Defer or in most cases eliminate Estate Tax liability. Avoid Probate.
  3. Isolate Assets from Litigation and Liens
  4. A vehicle to facilitate the transfer of Assets to future Generations
  5. Protection of Retirement Savings
  6. Asset Protection in the event of Bankruptcy
  7. Asset Protection in the event of a Divorce
  8. Trusts can operate Businesses

The type of Trust set up depends on the creator's circumstances, types of Assets and wishes. Please contact us for more information.

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