Planning for the future includes planning for the entire future. Before a person passes away, they must plan or decide where their assets will go. Many people will plan for family members to inherit their assets. Instead of worrying about those loved ones having to pay taxes on their inheritance, a trust can be set up to avoid probate courts and outrageous taxing procedures.
Most Common Types of Trusts
There are three common types of trusts: Life-insurance trusts, discretionary trusts, and charitable trusts.
- Life Insurance Trusts: Life insurance trusts have become a common type of trust between family members who want to avoid taxation. In the event that there is a life insurance trustee the beneficiaries still receive the intended assets, but it is all managed through a trustee. The life insurance policy itself will benefit the beneficiaries, but it will not be given directly to them upon the owner’s death. It will be distributed as the trust states, but by the trustee entitled to do so.
- Charitable Trusts: A charitable trust allows for the owner of the policy to not only donate a portion of their finances, property, and personal assets to a charitable cause, but it also offers a tax break for the remaining family members included in the trust. When the benefactor passes away, the taxes that would normally apply to an estate does not apply. Like many other trusts, charitable trusts are permanent. They are irrevocable, meaning that once the trust is established, the owner cannot reclaim any assets labeled as charitable within the trust.
- Discretionary Trusts: Discretionary trusts are also known as a family trust. They are the most commonly filed in the United States. Any assets that the family owns, whether it be personal or business related, is distributed among the members allocated in the trust when the owner dies. The tax laws for estates recognize this family trust and is unable to tax any of the assets. The person involved in filing the discretionary trust can dictate where they would like which assets to go and upon their death, the trust is then carried out accordingly.
When someone passes away or is diagnosed with a terminal illness the last thing the family wants to worry about is where their assets are going to go. Several families are forced to watch their most prized possessions auctioned off. By creating a solid trust, this can be prevented.