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3 Types Of Legal Trusts Most people instantly think of an irrevocable living trust when others talk about estate planning. But, there are plenty of different types of legal trusts. Each trust was designed for a specific purpose. This is the primary reason why legal experts strongly suggest that people seek the advice of an estate planning lawyer when setting up a trust. Doing it yourself could present a host of unanticipated problems. Trusts are legal forms of asset protection and distribution. Used properly, they can serve as a powerful shield for an estate's assets. There are 2 main categories under which they're created: testamentary and living. Under those 2 categories lay various forms of trusts. Below, you'll learn about 3 common types. #1 - Qualified Personal Residence Trust This is a unique legal entity that provides you with a way to "gift" your residence to another person. Though you assign legal ownership of your home to someone else, you can still control the residence for a predetermined number of years. The value of your home (according to the IRS) is assessed based upon what it will likely be worth at the end of those years. Due to inflation and other factors, your residence's value will likely be assessed lower than its current value. #2 - Credit Shelter Trust This type of legal trust is sometimes referred to as a family trust. It's a complicated form and should be considered with the help of a qualified estate planning attorney. When you establish a credit shelter trust, you create your will, giving your trust an amount up to the current estate tax exemption. Of course, you'll give the rest of your estate to your spouse without paying any taxes. The family trust is an option for avoiding taxes on the amount placed within it and providing monetary support for your spouse. #3 - Dynasty Trust This type of legal trust has been gaining popularity for the last few years. In its most basic form, it allows you to pass money to your heirs who are 2 generations removed from you. This trust is often used to transfer money tax-free to grandchildren. While the amount sheltered from taxes is currently set at $2 million (through tax year 2008), that limit is scheduled to be raised to $3.5 million for 2009. It's important to note that if you leave more than the exempted amount in the trust, it will be subjected to a transfer tax. Approaching Trusts Cautiously Legal trusts aren't merely for the rich. Anyone with an estate valued at $100,000 or more can benefit from them. However, they're not without potential hazards. Setting up the wrong type of trust for your situation can leave your assets vulnerable to unexpected taxes and other consequences. When you're ready to create a trust for your assets, seek the experienced advice of an estate planning lawyer.
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