Using trusts to transfer assets from an estate Trusts facilitate the transfer of property (and the income from that property) from an estate to another party.
A trust is a legal relationship created when one party, the, transfers property to a second party, the(which may be an organization or an individual), for the benefit of one or more third parties, the. The property placed in the trust is called theor res (the Latin word for thing or possession).
Trusts are used for various purposes, but the most common reasons for using a trust to transfer assets from an estate are (1) to attain income and estate tax savings and (2) to conserve property over a long period of time.
Consider the following scenarios:
Alison and Eileen both created trusts but used different approaches:
Alex
Alex created a trust that goes into effect as soon as the papers are signed-that is, while he is still alive. Alex has the right to change the trustee, the beneficiary, and other terms.
Carl
Carl is a wealthy individual who has created a trust in which the primary asset is life insurance on his life. Carl has named the trustee as the beneficiary of the trust in order to avoid having the proceeds of the insurance policy included in his own estate. The trustee will then use the proceeds to pay for Carl's estate taxes and to help take care of his spouse. Eventually, the remainder of the proceeds will be distributed to Carl's children.
1. What kind of trust did Alex most likely create?
A. A revocable living trust.
B. An irrevocable living trust.
C. An irrevocable life insurance trust.
D. A testamentary trust.
2. What kind of trust did Carl most likely create?
A. A revocable living trust.
B. An irrevocable living trust.
C. A testamentary trust.
D. An irrevocable life insurance trust.
Jared and Hubert both created trusts but used different approaches:
Jared
Jared Hubert Jared has a very nice nest egg and intends to provide for his grandchildren's higher educations. Jared is getting older and wants to make sure that, if his mental capacities start to slip, he can't be persuaded to change the trust and redirect the money elsewhere. Jared created a trust to ensure that his intentions are carried out.
Hubert
Hubert wants full use of his assets while he is alive. Hubert has no children. He created a trust to eventually give his assets to his nieces and nephews and to provide income from those assets to his surviving wife.
1. What kind of trust did Jared most likely create?
A. An irrevocable living trust.
B. A revocable living trust.
C. An irrevocable life insurance trust.
D. A testamentary trust.
2. What kind of trust did Hubert most likely create?
A. An irrevocable living trust.
B. An irrevocable life insurance trust.
C. A revocable living trust.
D. A testamentary trust.