Trusts are becoming a popular option for many Michigan residents when they prepare an estate plan. The wide variety of options and uses for trusts can't be understated. There are those that are designed with the primary goal of protecting inheritance, while others are intended to benefit children with special needs. Whatever the purpose behind the trust, there is no doubt about these instruments' ability to protect an estate.
However, there is also no doubt that diving into the realm of trusts can be accompanied by confusion. With so many options available, it would be completely understandable if our Michigan readers simply didn't know all that much about trusts. Recognizing this as a common problem throughout America, a recent article sought to shed some light on this oftentimes misunderstood area of estate planning.
The article noted that trusts can be created at different times. Some trusts are created while the person establishing the trust is still alive. These trusts, like most others, can be either revocable trusts or irrevocable trusts, depending on the wishes of the person establishing the trust. Either way, the trustee then maintains the trust for the benefit of the designated beneficiaries. But, other trusts are created upon a person's death. This is a common technique and usually comes with some tax planning advantages.
In fact, tax planning is one of the biggest reasons trusts are implemented. As the article noted, irrevocable trusts, in particular, are useful because assets transferred to an irrevocable trust while the person establishing the trust is still alive are no longer considered to be part of the person's estate. The person receiving the payouts from the trust would be the person to pay taxes - not the person who established the trust.
Source: FEDweek, "Assessing the Different Types of Trusts," Nov. 21, 2013