InSight

A guide to Trusts in Estate Planning

Financial Planning Dentist

Estate planning often involves the use of trusts to manage and distribute assets in a way that aligns with the individual’s goals, minimizes taxes, and ensures the well-being of beneficiaries. There are various types of trusts available, each serving specific purposes. Here is an overview of some common types of trusts used in estate planning:

1. Revocable Living Trust (RLT):
– Also known as a living trust, this allows the grantor (the person who creates the trust) to retain control of their assets during their lifetime.
– Assets in the trust can avoid probate, ensuring a smoother and more private transfer of wealth upon the grantor’s death.
– Can be modified or revoked by the grantor during their lifetime.

2. Irrevocable Trust:
– Once established, this trust generally cannot be altered or revoked by the grantor.
– Common types include irrevocable life insurance trusts (ILITs) and charitable remainder trusts (CRTs).
– Offers potential estate tax benefits and asset protection, but sacrifices some control over the assets.

3. Testamentary Trust:
– Created within a will and comes into effect upon the death of the grantor.
– Often used to provide for minor children or manage assets for beneficiaries with specific needs.
– Can be flexible in its terms and conditions.

4. Charitable Trusts:
– Designed to benefit charitable organizations while providing potential tax advantages to the grantor or their estate.
– Common types include charitable remainder trusts (CRTs) and charitable lead trusts (CLTs).

5. Special Needs Trust (SNT):
– Designed to provide for individuals with disabilities without jeopardizing their eligibility for government assistance programs like Medicaid or Supplemental Security Income (SSI).
– Ensures that funds are used for the beneficiary’s supplemental needs and quality of life.

6. Generation-Skipping Trust (GST):
– Designed to pass wealth to beneficiaries who are at least one generation younger than the grantor, typically grandchildren.
– Often used to minimize estate taxes by bypassing the grantor’s children’s generation.

7. Qualified Personal Residence Trust (QPRT):
– Allows the grantor to transfer their primary residence or vacation home to an irrevocable trust while retaining the right to live in it for a specified term.
– Reduces the taxable value of the property for estate tax purposes.

8. Dynasty Trust:
– Created to provide long-term wealth preservation by transferring assets to multiple generations.
– May be subject to the generation-skipping transfer tax but can help protect family wealth from creditors and estate taxes.

9. Family Limited Partnership (FLP) or Family Limited Liability Company (LLC):
– While not technically trusts, these entities are used in estate planning to centralize family assets, distribute income, and reduce estate taxes by allowing for minority discounts.

10. Qualified Terminable Interest Property (QTIP) Trust:
– Commonly used in second marriages, this trust provides income to a surviving spouse while preserving the principal for the benefit of other heirs.
– Often utilized to defer estate taxes until the second spouse’s death.

These are just some of the many types of trusts available for estate planning. The choice of trust depends on an individual’s specific goals, financial situation, and the needs of their beneficiaries. Consulting with an experienced estate planning attorney and your Certified Financial Planner (CFP) is crucial to determining the most appropriate trust or combination of trusts for your unique circumstances.

More related articles:

Articles
Kevin Taylor

The First 5 Benefits of Commercial Real Estate Investing

Commercial real estate investing has become a popular investment strategy for many individuals and businesses. It involves the purchase, ownership, and management of commercial properties such as office buildings, retail centers, industrial warehouses, and multifamily apartments. While the initial cost of an investment may seem high, the potential benefits of commercial real estate investing make it an attractive option for many. Here are the first 5 benefits of commercial real estate investing: The Potential Income Income potential One of the most significant benefits of commercial real estate investing is the potential for a steady income stream. Commercial properties generate rental income, which can provide investors with a regular cash flow. According to a report by the National Council of Real Estate Investment Fiduciaries (NCREIF), commercial real estate had an average annual return of 9.85% from 1990 to 2020, with most of that return coming from rental income. Capital Appreciation Appreciation Another benefit of commercial real estate investing is the potential for property appreciation. As demand for commercial properties increases, the value of those properties can increase as well. According to a report by the Urban Land Institute, commercial property values have increased by an average of 5.5% per year from 2010 to 2020. Investment Diversity Diversification Commercial real estate investing can provide diversification to an investment portfolio. Diversification helps to reduce the overall risk of a portfolio by spreading investments across different asset classes. Commercial real estate has a low correlation with traditional stocks and bonds, which means that it can provide a hedge against stock market volatility. Tax Benefits Tax benefits Commercial real estate investing can provide significant tax benefits. For example, investors can deduct expenses – such as property taxes, mortgage interest, and depreciation from their taxable income. Additionally, a 1031 exchange allows investors to defer taxes on capital gains by reinvesting the proceeds from the sale of a property into another property. Control Control Investing in commercial real estate provides investors with a greater degree of control over their investments. Unlike other investment vehicles such as mutual funds or stocks, investors have the ability to make strategic decisions about the property, such as selecting tenants, setting rental rates, and making improvements to the property to increase its value. In conclusion, commercial real estate investing offers a range of potential benefits, including a steady income stream, appreciation potential, diversification, tax benefits, and greater control over investments. As with any investment, it’s important to conduct thorough due diligence and consult with professionals before making any decisions. However, for those who are willing to put in the effort, commercial real estate can provide an attractive investment opportunity. Sources: National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index Urban Land Institute, Emerging Trends in Real Estate 2021 Investopedia, “The Benefits of Investing in Commercial Real Estate” Forbes, “10 Reasons Why Commercial Real Estate Is A Great Investment”

Read More »
boulder colorado risk management finacial planning
Articles
Kevin Taylor

Mastering Risk Management: Insurance – A Comprehensive Guide

Insurance is a crucial component of risk management, offering protection against unforeseen events that can have significant financial implications. In this blog post, we will explore best practices in life insurance, homeowners and property and casualty coverages, identify gaps in health insurance, and understand how insurable setbacks can impact your financial plan. By mastering risk management through insurance, you can ensure comprehensive coverage and safeguard your financial well-being. Life Insurance Best Practices: Assess Your Coverage Needs: Determine the appropriate coverage amount based on your financial responsibilities, such as outstanding debts, income replacement for dependents, and future financial goals. Consider consulting with a financial advisor to determine the ideal coverage for your specific situation. Choose the Right Policy: Understand the different types of life insurance policies, including term life insurance and permanent life insurance (such as whole life or universal life). Evaluate their benefits, costs, and suitability for your needs. Review and Update Regularly: Life circumstances change, so regularly review your life insurance coverage to ensure it aligns with your current needs. Life events like marriage, the birth of a child, or significant financial changes may necessitate adjusting your coverage. Homeowners and Property/Casualty Coverages: Evaluate Coverage Limits: Assess the value of your home, personal belongings, and assets to determine appropriate coverage limits for your homeowners and property/casualty policies. Ensure your coverage adequately protects you against potential losses, including natural disasters or theft. Understand Policy Exclusions: Familiarize yourself with the exclusions and limitations of your policies. Some events, such as floods or earthquakes, may require separate coverage or riders. Consider obtaining additional coverage where necessary. Regularly Review Policies: Regularly review your homeowners and property/casualty policies to ensure they reflect any changes or improvements made to your property. Inform your insurer about renovations or significant upgrades that may impact coverage needs. Identifying Gaps in Health Insurance: Review Coverage Details: Carefully review the terms and conditions of your health insurance policy to understand the coverage provided. Pay attention to factors such as deductibles, co-pays, and coverage limits for specific treatments or services. Assess Additional Coverage Needs: Evaluate potential gaps in your health insurance coverage. Consider obtaining supplemental insurance for dental, vision, or prescription medications, depending on your specific needs. Plan for Unexpected Medical Expenses: Prepare for unforeseen medical costs by establishing an emergency fund or considering a health savings account (HSA). These financial resources can help cover deductibles or out-of-pocket expenses that may arise. Impact on Your Financial Plan: Conduct a Risk Assessment: Assess how potential insurable setbacks, such as loss of income, property damage, or significant medical expenses, can impact your financial plan. Identify areas where insurance coverage can provide protection and mitigate financial risks. Work with a Financial Advisor: Collaborate with a financial advisor to integrate insurance into your comprehensive financial plan. They can help you determine the right coverage levels, manage risks, and ensure alignment with your long-term financial goals. Regularly Revisit and Update: Your financial plan and insurance needs to evolve over time. Regularly revisit your plan, especially during major life events or significant changes in your financial situation. Update your coverage to accommodate new circumstances and ensure adequate protection.   Mastering risk management through insurance is crucial for safeguarding your financial well-being. By implementing best practices in life insurance, homeowners and property/casualty coverage, identifying gaps in health insurance, and understanding the impact of insurable setbacks on your financial plan, you can proactively manage risks and protect yourself from financial losses. Regularly review and update your insurance coverage to ensure  

Read More »
Articles
Peter Locke

Divorcing Women and their Unheard Financial Goals

Financial problems are one of the most cited causes of divorce and crafting a Divorce Financial Plan can be your best opportunity for a new start. The compounding stresses of money management and home economics can act as an accelerant for the underlying causes of marital strife and ultimately divorce. It should also come as no surprise that divorce often results in a change in financial direction for both parties, who through the process of divorce find they have several financial goals and needs that are not part of the current marital financial plan. So for one of the parties, it’s time for a change in the methods, tools, and priorities addressed in the financial plan.  On the heels of a divorce, here are some of the most commonly shared priorities that went unaddressed in prior relationships with investment professionals and financial advisors: 66% Hope to pay off debt accrued in or before the divorce 41% Want to save for a comfortable retirement 38% Would like to start or have a  larger emergency fund 34% Would like less risky investments 27% Would like a new home 20% Want more new streams of reliable income 19% Are hoping to build their wealth through investments 12% Want to gain confidence in their insurance  We feel that most of the divergence between the goals of these surveyed divorcees and their financial plans started long before the divorce proceedings. The disconnect between the financial goals of a single party and those established in a marital financial plan likely existed well before the topic of divorce arose and stems from a lack of communication and shared vision.   A staggering majority of recently divorced women comment that their post-divorce financial plan looks nothing like their marital financial plan. Furthermore, an alarming number of women developing a financial plan reveal that they have not yet discussed these priorities with a financial professional which begs the question of how a financial plan that fails to uncover the goals and needs of the woman became enshrined in the first place. As a result, many don’t have a clear path on how to achieve their stated financial goals.  These unheard financial goals compound the already frustrating and stressful situation a divorce brings.  A Certified Divorce Financial Analyst® or CDFA® can play a significant role when uncovering the value of shared assets, divining a tax-based strategy for the future value of different investment types, and assisting in dividing marital assets during the divorce process. Additionally, a CFP® professional can assist you in understanding your options, documenting your financial goals, and putting you in the best position possible to help you achieve your financial goals post-divorce. Generally speaking, women live longer, have different expectations for their money, and prioritize investment returns and strategies. As such, their financial plans should be developed differently. Having a financial advisor by their side during divorce is crucial for combining their long-term financial planning expectations with their current asset make-up. If from the outset, a divorcee lays out a road map for their financial life, the advisor and attorney can better negotiate the terms of the settlement for their shared client. However, in a 2018 survey by the publication Worthy survey, 56% of women getting a divorce, discussed the marital house and debt as a priority, but only 48% discussed taxes, 34% discussed alimony, and 39% discussed the ongoing cost of child care. All of these have a more impactful weight on the long-term success of retirement and the border financial plan.  This makes working with a CDFA® and CERTIFIED FINANCIAL PLANNER™ even more crucial when facing a divorce. A financial professional can help you overcome emotional turmoil to bring you the financial vision and stability you deserve after divorce. The Complete Playbook

Read More »

Pin It on Pinterest