Most people are familiar enough with trusts to know that they can make very effective tools for reducing estate taxes and avoiding the Florida probate process.
However, trusts come in countless shapes and sizes. For this reason, many people do get confused about what types of trusts exist and how they differ from each other.
Let's take a brief look at a few different kinds of trusts mentioned by CNN Money:
- Living trust — This is established and goes into effect during your lifetime.
- Testamentary trust — This is included within your will, and it only goes into effect after you pass away.
- Revocable trust — With this type, you can change the terms at any time, remove assets from the trust or cancel the trust altogether.
- Irrevocable trust — You give up control of the assets, so you can no longer do with them what you please (unlike with a revocable trust).
- Dynasty or generation-skipping trust — This is often used to transfer assets tax-free to grandchildren or great-grandchildren.
- Credit shelter or family trust — This allows you to place a certain amount of assets into the trust to reach the estate-tax exemption, then the rest of your assets pass to your spouse tax-free.
- Life insurance trust — This allows you to surrender ownership of your life insurance policy in exchange for giving your heirs a significant amount of upfront cash.
- Qualified personal residence trust — This allows you to exclude the value of your house from the overall value of your estate.
- Qualified terminable interest property trust — This allows you to give assets to certain relatives (such as biological children instead of stepchildren) while still providing your spouse with income.
Because the world of trusts is so complex, it makes sense to consult a professional before making any estate planning decisions. Consider scheduling a consultation with a Miami lawyer skilled in these intricate estate planning issues.