TYPES OF WILLS AND TRUSTS

Simple will: A simple will generally transfers everything you own outright to your surviving spouse, children or other beneficiaries. A simple will does not provide creditor protection for the assets you pass on to your beneficiaries. Once your spouse, children or other beneficiaries receive your estate, current or future creditors can attach those assets.

Comprehensive will: A comprehensive will establishes testamentary trusts to hold your estate for the benefit of your spouse, children or other beneficiaries. Drafted correctly, a testamentary trust provides valuable creditor protection for your beneficiaries. After all, why leave your estate to your beneficiaries, if future creditors can take it away? Best of all, the trust can be structured so that your spouse, children or other beneficiaries have full control of their trust.

Pour-over- will: A pour-over will is often used in conjunction with a living trust. It transfers any assets that were not transferred to your trust during your lifetime and “pours” them into your trust upon death. Your estate will not avoid probate if the assets that “pour” into your trust are worth more than $50,000.00.

Tax-saving will: Is the same as a comprehensive will with the addition of a testamentary credit shelter trust designed to eliminate or minimize transfer taxes. A credit shelter trust can provide lifetime benefits to your spouse and children, without having the trust assets included in their estate.

Living trust without tax planning: A living trust is a trust established during your lifetime. Much like a comprehensive will, a properly drafted living trust provides excellent creditor protection for beneficiaries of your estate and in addition, avoids probate if properly funded during your lifetime. You are the trustee of your trust and have full control over trust assets. However, if you become mentally incapacitated, a successor trustee (usually your spouse) takes over and manages your estate for you without the hassles sometimes associated with powers of attorney.

Testamentary trust: A testamentary trust is a trust established upon death with a will. A testamentary trust offers the same tax advantages as a living trust does, but does not avoid probate.

Credit shelter trust: A credit shelter trust can be established during your lifetime or upon death depending on whether you want to avoid probate. This type of trust assures that your federal estate tax exemption is fully used or “sheltered” and allows you to pass on an estate worth $1,000,000.00 during years 2002 and 2003 without incurring any transfer taxes.

GST or dynasty trust: A GST trust allows generation after generation to benefit from the trust without having trust assets included in any beneficiary’s estate for transfer tax purposes. The GST exemption is currently $1,060,000 and increases to $3.500,000 by the year 2009. Generation skipping transfers which exceed the exemption are subject to a flat 50% GST tax in addition to estate and gift taxes.

QTIP trust: A qualified terminable interest property trust is generally used in a second marriage situation when you want your spouse to receive trust income for life and then distribute the principal of the trust to other beneficiaries or children from a prior marriage.

QDOT trust: A qualified domestic trust allows use of the marital deduction for assets passing to a non-citizen spouse. Without it, transfer taxes are due on assets worth more than $106,000 per year passing to a non-citizen spouse.

ILIT trust: Typically, life insurance proceeds are included in your estate even though they are paid to your spouse, children or other beneficiaries. An “irrevocable life insurance trust” prevents life insurance proceeds from being included in your estate for estate tax purposes.