Choose the Right Trust Plan for Your Will

All trusts aren't alike. When you put a trust in your will, it should be drafted precisely in order to satisfy your wishes and goals. Just any old boilerplate text or preprinted legal form won't do.

You may have one or more reasons to put a trust in your will (called a testamentary trust by lawyers). It can benefit your family, protect your money and save taxes. When the initial beneficiary dies (your spouse, perhaps), your trust can make certain other heirs chosen by you (say, children or grandchildren) will share the principal. Or you may want your favorite charitable organization to benefit. Quite likely you have other goals you want your trust to achieve.

You can set up a trust for just about any purpose. It's a remarkably versatile and flexible means to carry out your intent and assure the prudent management and eventual distribution of your assets. Let's look at some possibilities and benefits.

Types of Trusts

Testamentary trusts are often given various kinds of descriptive labels to identify their nature and purpose. Still, a trust can have multiple objectives.
  • Marital trust. You can leave some of your estate to a marital trust for your surviving spouse's benefit. The trust assets will be free of federal estate tax1 in your estate because of a marital deduction, but they will be subject to estate tax when your spouse dies later. You can give your spouse the right to appoint the trust remainder to anyone. Or, if you prefer, you can use a "QTIP trust" so you can name the remainder beneficiaries.
  • Family trust. Also called a bypass or credit-shelter trust, this provides lifetime financial support for your spouse. The trust assets can bypass the federal estate tax twice: first, at your death, when it qualifies for the unified estate and gift tax credit; second, on your spouse's death, when the remaining principal passes directly to your children or other beneficiaries you name. Many couples include both a marital trust and a family trust in their estate plans.
  • Other trust types. An irrevocable life insurance trust is funded by the proceeds of life insurance on your life. A trust that benefits your family first and then distributes the principal to your favorite philanthropy is called a charitable remainder trust. Trust types go on and on.

Typical and Special Trust Provisions

Trusts usually last a long time. Just as you wisely choose the right kind of trust, you should include essential terms to assure flexibility and anticipate unpredictable circumstances.

Plan Carefully

Don't take chances—make sure your trust plans fulfill your beneficiaries' needs, allow prudent investment management and shelter the assets from unnecessary taxes. See an attorney who specializes in drafting wills and trusts. Equally important, name an experienced corporate trustee.

Please contact Jackie Peterson at 507-933-7543, or via e-mail at jpeters9@gustavus.edu, for more information.

1Currently federal estate taxes are repealed for the year 2010, but Congress has several bills under consideration to reinstate federal estate taxes for anyone who dies in the year 2010 and beyond. What the final legislation will look like is unknown at this point. Check back later for future updates.