Estate Planning

Trusts are an extremely flexible and useful tool for estate planning. A trust is a contract between the donor or grantor and the manager of the trust's assets, called the trustee. The trustee holds legal title to the trust property. The trustee has a legal duty to manage the trust property for the benefit of the trust's beneficiaries. The five common elements of all trusts are a grantor, a trustee, a beneficiary, the trust property, and the terms of the trust agreement. Trusts that take effect during the grantor's lifetime are living trusts, while those that take effect upon the grantor's death are testamentary trusts. Testamentary trusts are established by a decedent's will. Trusts may be either revocable or irrevocable. Property transfers to an irrevocable trust are completed gifts; that is, they are no longer owned by the grantor. Property transfers to a revocable trust are not completed gifts, and the grantor retains the power to retrieve the trust property.

There are many different types and uses of trusts. Particular types of trusts are selected based on their usefulness for accomplishing particular estate planning objectives. For example, one use of a qualified terminable interest property trust (Q-TIP) is to provide income to a surviving spouse from a second or subsequent marriage, while ensuring that the trust property is ultimately distributed to children from previous marriages. Some objectives can only be accomplished through the use of a particular type of trust. For example, a qualified domestic trust must be used to obtain the benefits of the estate tax marital deduction for a nonresident alien spouse of a U.S. citizen. Trusts are particularly useful in dealing with a whole range of situations where the intended beneficiary either is not legally competent to own property, such as a minor, or may become incapable of managing his or her own property.