Protect Your Legacy with Trusts

Did you know that nearly 25 percent of people over 50 have a living trust? As part of a well-defined estate conservation plan, trusts can help preserve more of your assets for your loved ones and avoid the delays and costs of probate.

A trust is a legal arrangement under which one person or institution controls property given by another person for the benefit of a third party. If you currently don’t have a trust or you’re unsure whether your trust offers the right protection, you may want to learn more about A-B (bypass) trusts, irrevocable trusts, and life insurance trusts. Working together, these three types of trusts can help safeguard your legacy.

A-B Trusts
A living trust with a properly structured A-B provision can allow married couples to exempt twice as much of their estate from taxes as they could without a bypass trust. When one spouse dies, the trust is split in two. The assets of the surviving spouse are transferred to the A trust, while the assets of the deceased spouse go to the B trust. Each trust becomes a taxable entity entitled to the current estate tax exemption ($1 million in 2002 and 2003).

Irrevocable Trusts
When you establish an irrevocable trust, you relinquish control of your assets while you’re living. Although irrevocable trusts can protect your estate from taxes on assets valued above the estate tax exemption, you may want to consider this option carefully because it means giving up control of your assets during your lifetime.

Life Insurance Trusts
If relinquishing control of your assets doesn’t appeal to you, consider establishing a life insurance trust to pay the estate taxes on assets valued above the estate tax exemption amount. A life insurance trust holds an insurance policy in an irrevocable trust, so the policy itself is not taxable. It can help give your beneficiaries the cash they may need to pay estate taxes, perhaps eliminating the need to sell assets.⁴

As with all the elements of your estate conservation plan, trusts should be reexamined regularly so that new assets can be added and beneficiaries updated.