For people with a significant amount of wealth, trusts are often an important and advanced tool used in an estate plan. But you do not have to have a certain amount of wealth in order for you or your loved ones to benefit. Many people use trusts like credit-shelter and irrevocable life insurance trusts to minimize taxes and avoid probate. But there are other -- though not as well-known but just as useful -- trusts available. We identify some of those trusts in this article.
However, keep in mind, it's always best to speak with an estate planning attorney to identify if and which trust is best for you.
Which Trust Do You Need in Your Tennessee Estate Plan?
There are different trusts that can be created to suit different wants and needs. Here are examples of trusts to show you the breadth and range available.
Do you have a loved one with special needs?
There are different ways you can set up a special needs trust (also known as a supplemental needs trust) in Tennessee. If prepared correctly, you will be able to provide an additional source of income to help care for a loved one with special needs without disqualifying that person from government-based benefits such as TennCare or Medicaid.
Did you remarry but have children from the first marriage?
If you remarried but have children from a first marriage, you may want to consider a Qualified Terminable Interest Property Trust (QTIP). This trust allows you to provide for your spouse upon your death while also maintaining some control so that your children from a previous marriage receive assets upon the death of the surviving spouse. This trust is also very useful for tax planning if you have a significant amount of assets.
Do you have grandchildren you prefer over your own children?
A Generation Skipping Trust allows you to transfer assets to your grandchildren. This type of trust is useful may be useful if you wish to leave a significant amount of money to one or more grandchildren. Moreover, if you have a child with significant wealth and they do not need to inherit from you, this type of trust would be handy to reduce potential estate taxes.
Do you have firearms?
If you have firearms, then you need to understand your rights and abilities to transfer them upon death or incapacity. In most cases, an NFA Trust or Gun Trust is in your best interest. Whether you have silencers and machine guns or revolvers and Glock pistols, these types of trusts provide significant advantages. It's important to keep in mind that not only Class 3 firearms are subject to problems upon your death, but any type of firearm could become an issue, especially if an heir has been in trouble with the law (e.g., felony crime or domestic violence).
Do you want to give large sums to family members but avoid the gift tax?
If drafted properly, the Grantor Retained Annuity Trust (GRAT) allows you to give a large financial gift to loved ones while also allowing you to avoid the gift tax.
Do you want to pay taxes on your property so your children receive the full value of the assets?
An Intentionally Defective Grantor Trust, also referred to as a grantor trust, creates a flaw intentionally so that you, as the grantor, pay income taxes on the assets in the trust. Under “normal” circumstances, the trust pays income taxes on the trust's earnings. The purpose is to ensure the beneficiary receives the full value of the assets in the trust.
Do you have significant amounts of life insurance?
If you have a large estate that is taxable or potentially taxable, it is a good idea to place your life insurance policies in an Irrevocable Life Insurance Trust. By doing so, you remove the life insurance policies from counting against your estate tax exemption, allowing more of your assets to pass tax free to your children.
Where Do You Start if You Want a Trust added to Your Tennessee Estate Plan?
As mentioned, there are many other types of trusts that can be created. Speaking to an estate planning attorney is the best way for you to optimize your wealth via trusts for your heirs. So, the best starting point if you are considering a trust is contacting an experienced trust attorney in Clarksville.