Frye & Associates-Types of Trusts/title> <style type="text/css">  </style> </head> <body> <table width="800" border="0" align="center" cellpadding="0" cellspacing="0" bgcolor="#FFFFFF"> <tr> <td><img src="../Law_offices.JPG" width="800" height="90" /></td> </tr> <tr> <td><table width="90%" border="0" align="center" cellpadding="0" cellspacing="0"> <tr> <td><a href="../Legal-Estate Planning.html"><img src="../../images/arrow.jpg" width="45" height="41" border="0" /></a></td> </tr> <tr> <td><div align="center" class="style93">Types of Trusts </div></td> </tr> <tr> <td><table width="200" border="0" cellspacing="0" cellpadding="1"> <tr> <td class="style15"><a href="#RLT" class="style103">Revocable Living Trusts </a></td> </tr> </table></td> </tr> <tr> <td><table width="200" border="0" cellspacing="0" cellpadding="1"> <tr> <td class="style15"> </td> <td> </td> </tr> <tr> <td width="184" class="style15"><a href="#IT" class="style103">Irrevocable Trusts </a></td> <td width="6"> </td> </tr> </table></td> </tr> <tr> <td><table width="257" border="0" cellspacing="0" cellpadding="1"> <tr> <td width="30"> </td> <td width="223" class="style15"><p><a href="#SNT">Special Needs Trust </a></p></td> </tr> <tr> <td> </td> <td class="style15"><p><a href="#CST">Credit Shelter Trust </a></p></td> </tr> <tr> <td> </td> <td class="style15"><p><a href="#MDT">Marital Deduction Trust</a> </p></td> </tr> <tr> <td> </td> <td class="style15"><p><a href="#QDT">Qualified Domestic Trust</a> </p></td> </tr> <tr> <td> </td> <td class="style15"><p><a href="#QPRT"></a> <a href="#LIT"></a><a href="#QPRT">Qualified Personal Residence Trust</a></p></td> </tr> <tr> <td> </td> <td class="style15"><p><a href="#CRT"></a><a href="#QPRT"></a><a href="#CRT">Charitable Remainder Trust </a></p></td> </tr> <tr> <td> </td> <td class="style15"><p><a href="#GRAT"></a> <a href="#CRT"></a><a href="#GRAT">Grantor Retained Annuity Trust</a><a href="#GRIT"></a></p></td> </tr> <tr> <td> </td> <td class="style15"><a href="#GRIT">Grantor Retained Interest Trust</a><a href="#OAPT"></a></td> </tr> <tr> <td> </td> <td class="style15"><a href="#OAPT">Offshore Asset Protecton Trust </a></td> </tr> <tr> <td> </td> <td class="style15"><p><a href="#LIT">Life Insurance Trust </a></p></td> </tr> </table></td> </tr> <tr> <td> </td> </tr> <tr> <td> </td> </tr> <tr> <td class="style15"><table width="721" border="0" cellspacing="1" cellpadding="1"> <tr bordercolor="#FFFFFF"> <th width="147" valign="top" bordercolor="#FFFFFF" scope="col"><div align="left" class="style95"> <p>Revocable Living Trusts<a name="RLT" id="RLT"></a></p> </div></th> <th width="567" bordercolor="#FFFFFF" scope="col"><div align="justify" class="style15"> <table width="538" border="0" cellspacing="0" cellpadding="1"> <tr> <td class="style101">Advantages </td> </tr> <tr> <td><ul type="square"> <li>Avoids costly and time-consuming probate process. </li> <li>Provides the option of managing the trust’s assets directly or selecting others to manage the estate.</li> <li>Acts as a tool for the management and control of your assets in the event you become legally incapacitated.</li> <li>Allows the transfer of your estate to remain private and out of the public court records. </li> </ul> </td> </tr> <tr> <td><span class="style101">Disadvantages</span></td> </tr> <tr> <td><ul> <li>May be cumbersome to change account titles and fund the trust.</li> </ul></td> </tr> <tr> <td><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /></td> </tr> </table> </div></th> </tr> </table></td> </tr> <tr> <td width="79%" class="style15"><table width="719" border="0" cellspacing="1" cellpadding="1"> <tr> <th width="161" valign="top" scope="col"><div align="left"> <p class="style95"><strong>Irrevocable<a name="IT" id="IT"></a> Trusts</strong><strong></strong></p> </div></th> <th width="538" bordercolor="#FFFFFF" scope="col"><div align="justify" class="style15"> <table width="538" border="0" cellspacing="0" cellpadding="1"> <tr> <td class="style101">Advantages </td> </tr> <tr> <td><ul type="square"> <li>Removes assets placed in trust from your estate, thereby reducing estate and income taxes.</li> <li>Assets are generally protected from outside creditors.</li> <li>Avoids probate. </li> </ul> </td> </tr> <tr> <td><span class="style101">Disadvantages</span></td> </tr> <tr> <td><ul type="square"> <li>Irrevocable trusts are permanent and generally cannot be altered. </li> <li>You give up both possession and control of your assets.</li> </ul> </td> </tr> <tr> <td><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /></td> </tr> </table> </div></th> <th width="10" scope="col"><div align="justify"> <p> </p> <p> </p> </div></th> </tr> </table> <table width="719" border="0" cellspacing="1" cellpadding="1"> <tr> <th width="148" valign="top" scope="col"><div align="left"> <p align="left" class="style95"> </p> </div></th> <th width="564" scope="col"><div align="justify" class="style15"> <table width="538" border="0" cellspacing="0" cellpadding="1"> <tr> <td class="style104"> </td> </tr> <tr> <td class="style104"><span class="style101"><a name="SNT" id="SNT"></a></span>Special Needs Trust</td> </tr> <tr> <td class="style101"> </td> </tr> <tr> <td class="style101">Advantages </td> </tr> <tr> <td><ul type="square"> <li>Can provide for the needs of a disabled individual throughout his or her life.</li> <li>Supplements, rather than replaces, government benefits.</li> <li>Can be established with funds that belong to someone other than the disabled beneficiary (a third-party special needs trust) or with funds owned by the disabled beneficiary (a self-settled special needs trust). </li> </ul> </td> </tr> <tr> <td><span class="style101">Disadvantages</span></td> </tr> <tr> <td><ul type="square"> <li>Beneficiary has no control over assets.<strong> </strong></li> <li>Complex to administer; trustee must not make payments or distributions that might interfere with government benefit eligibility.</li> </ul> </td> </tr> <tr> <td><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /></td> </tr> </table> </div></th> </tr> </table> <table width="719" border="0" cellspacing="1" cellpadding="1"> <tr> <th width="148" valign="top" scope="col"><div align="left" class="style95"> <div align="left" class="style104"> <div align="left"></div> </div> </div></th> <th width="564" scope="col"><div align="left"> <table width="538" border="0" cellspacing="0" cellpadding="1"> <tr> <td class="style101"> </td> </tr> <tr> <td class="style107"><span class="style101"><a name="CST" id="CST"></a></span>Credit Shelter Trust</td> </tr> <tr> <td class="style101"> </td> </tr> <tr> <td class="style101">Advantages </td> </tr> <tr> <td><ul type="square"><li>Allows both you and your spouse to fully utilize your Applicable Exclusion Amounts. <em><a href="../pdf/exclusion-tax-rate-chart.pdf">See Exclusion and Tax Rate Chart.</a></em></li> <li>In addition to the Applicable Exclusion Amounts that can pass tax-free to heirs, any appreciation of the assets held in the trust passes tax-free to your beneficiaries.</li> </ul> </td> </tr> <tr> <td><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /></td> </tr> </table> </div></th> </tr> </table> <table width="720" height="19" border="0" cellpadding="1" cellspacing="0"> <tr> <th width="150" align="left" valign="top" scope="col"><div align="center" class="style95"> <div align="left" class="style104"> <div align="left"></div> </div> </div></th> <th width="566" scope="col"><div align="justify"> <table width="538" border="0" cellspacing="0" cellpadding="1"> <tr> <td class="style101"> </td> </tr> <tr> <td class="style107">Marital <a name="MDT" id="MDT"></a>Deduction Trust</td> </tr> <tr> <td class="style101"> </td> </tr> <tr> <td class="style101">Advantages </td> </tr> <tr> <td><ul type="square"> <li>Established to benefit a surviving spouse and take advantage of the unlimited marital deduction for spouses that are U.S. citizens.</li> <li>Assets placed in this trust escape estate tax upon the death of the first spouse. </li> </ul> </td> </tr> <tr> <td><span class="style101">Disadvantages</span></td> </tr> <tr> <td><ul type="square"> <li>Assets placed in this trust escape estate tax upon the death of the first spouse, but may be subject to estate tax upon the death of the second spouse.</li> <li>You do not have to place assets in a trust to take advantage of the marital deduction. </li> </ul> </td> </tr> <tr> <td><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /></td> </tr> </table> </div></th> </tr> </table> <table width="719" border="0" cellspacing="1" cellpadding="1"> <tr> <th width="148" valign="top" scope="col"><div align="left" class="style104"></div></th> <th width="564" scope="col"><div align="left"> <table width="538" border="0" cellspacing="0" cellpadding="1"> <tr> <td class="style101"> </td> </tr> <tr> <td class="style104">Qualified<a name="QDT" id="QDT"></a> Domestic Trust (QDOT) </td> </tr> <tr> <td class="style101"> </td> </tr> <tr> <td class="style101">Advantages </td> </tr> <tr> <td><ul type="square"> <li>A marital deduction is not allowed if the surviving spouse is not a U.S. citizen and does not become a citizen by the time that the estate tax return is filed. Implementing a QDOT in your estate plan preserves the marital deduction when the surviving spouse is not a U.S. citizen and when the trust assets are subject to federal estate tax.</li> </ul> </td> </tr> <tr> <td><span class="style101">Disadvantages</span></td> </tr> <tr> <td><ul type="square"> <li>At least one trustee must be a U.S. citizen (or U.S. corporation)</li> <li>Special QDOT election MUST be made on the estate tax return</li> <li>The income the surviving non-citizen spouse receives from the QDOT is taxed as income in the year received. </li> <li>The principal the surviving spouse receives from the QDOT (unless the distribution is due to "hardship" as defined by the IRS), plus assets remaining in the QDOT upon the death of the surviving spouse, will be taxed as if it were part of the decedent’s estate (at the decedent’s highest estate tax rate).</li> </ul></td> </tr> <tr> <td><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /></td> </tr> </table> </div></th> </tr> </table> <table width="719" border="0" cellspacing="1" cellpadding="1"> <tr> <th width="149" valign="top" scope="col"><div align="left" class="style104"></div></th> <th width="563" scope="col"><div align="left"> <table width="538" border="0" cellspacing="0" cellpadding="1"> <tr> <td class="style101"> </td> </tr> <tr> <td class="style104">Qualified<a name="QPRT" id="QPRT"></a> Personal Residence Trust </td> </tr> <tr> <td class="style101"> </td> </tr> <tr> <td class="style101">Advantages </td> </tr> <tr> <td><ul type="square"><li>This trust allows the grantor to make a gift of his or her residence to the trust for a term of years, usually for the ultimate benefit of children, at a discounted value.</li> <li>At the end of the term of years, the residence passes to the beneficiaries while the grantor still has the right to use the residence during his or her lifetime.</li> <li>The residence is not included in the grantor’s estate upon his or her death if the grantor survives the term of years.</li> <li>The remainder gift to the beneficiary is valued under favorable gift tax valuation rules.</li> <li>The property can be your principal residence, as well as a vacation home.</li> </ul> </td> </tr> <tr> <td><span class="style101">Disadvantages</span></td> </tr> <tr> <td><ul type="square"> <li>Estate tax savings only occur if the grantor survives the term of years.</li> <li>If not, the downfall is that the full value of the residence will be included in the grantor’s estate. <strong></strong></li> </ul></td> </tr> <tr> <td><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /></td> </tr> </table> </div></th> </tr> </table> <table width="719" border="0" cellspacing="1" cellpadding="1"> <tr> <th width="150" valign="top" scope="col"><div align="left" class="style104"></div></th> <th width="562" scope="col"><div align="left"> <table width="538" border="0" cellspacing="0" cellpadding="1"> <tr> <td class="style101"> </td> </tr> <tr> <td class="style104">Charitable <a name="CRT" id="CRT"></a>Remainder Trusts </td> </tr> <tr> <td class="style101"> </td> </tr> <tr> <td class="style101">Advantages </td> </tr> <tr> <td><ul type="square"> <li>Charitable Remainder Trusts provide you with income from the trust either for life or for a set period of years. The remainder is distributed to the charity.</li> <li>Provides a way to substantially increase cash flow from assets.</li> <li>Charitable tax deduction for present value of the gift. </li> </ul> </td> </tr> <tr> <td><span class="style101">Disadvantages</span></td> </tr> <tr> <td><ul type="square"> <li>If someone other than you or your spouse is the income beneficiary, you may owe a gift tax.</li> </ul></td> </tr> <tr> <td><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /></td> </tr> </table> </div></th> </tr> </table> <table width="719" border="0" cellspacing="1" cellpadding="1"> <tr> <th width="149" valign="top" scope="col"><div align="left" class="style104"></div></th> <th width="563" scope="col"><div align="left"> <table width="538" border="0" cellspacing="0" cellpadding="1"> <tr> <td class="style101"> </td> </tr> <tr> <td class="style104">Grantor<a name="GRAT" id="GRAT"></a> Retained Annuity Trust (GRAT) </td> </tr> <tr> <td class="style101"> </td> </tr> <tr> <td class="style101">Advantages </td> </tr> <tr> <td><ul type="square"> <li>GRAT pays you a fixed income. At the end of the fixed term, the trust property is distributed to selected beneficiaries.</li> </ul></td> </tr> <tr> <td><span class="style101">Disadvantages</span></td> </tr> <tr> <td><ul type="square"> <li>The transfer to a GRAT could result in a current taxable gift. Because of the retained annuity interest, however, the remainder beneficiary’s interest can be transferred at a discounted value.</li> </ul></td> </tr> <tr> <td><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /></td> </tr> </table> </div></th> </tr> </table> <table width="719" border="0" cellspacing="1" cellpadding="1"> <tr> <th valign="top" scope="col"><div align="left" class="style95"> <h1 class="style105"> </h1> </div></th> <th scope="col"><div align="left"> <table width="538" border="0" cellspacing="0" cellpadding="1"> <tr> <td class="style101"> </td> </tr> <tr> <td class="style105">Grantor <a name="GRIT" id="GRIT"></a>Retained Interest Trust (GRIT) </td> </tr> <tr> <td class="style101"> </td> </tr> <tr> <td class="style101">Advantages </td> </tr> <tr> <td><ul type="square"> <li>Because of the retained interest, the value of the transfer for federal gift tax purposes may be discounted.</li> <li>Principal remaining in the GRIT at the end of the term of years is removed from the grantor's gross estate for federal estate tax purposes </li> <li>Appreciation produced by the GRIT property during the term of years passes to the remainder beneficiaries free of federal gift tax. </li> </ul></td> </tr> <tr> <td><span class="style101">Disadvantages</span></td> </tr> <tr> <td><ul type="square"> <li>If the grantor does not outlive the term of years, property in the GRIT is includable in the grantor's gross estate for federal estate tax purposes.</li> </ul></td> </tr> <tr> <td><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /></td> </tr> </table> </div></th> </tr> <tr> <th width="150" valign="top" scope="col"><div align="left" class="style95"> <h1 class="style105"> </h1> </div></th> <th width="562" scope="col"><div align="left"> <table width="538" height="418" border="0" cellpadding="1" cellspacing="0"> <tr> <td class="style101"> </td> </tr> <tr> <td class="style105">Offshore <a name="OAPT" id="OAPT"></a>Asset Protection Trust </td> </tr> <tr> <td class="style101"> </td> </tr> <tr> <td class="style101">Advantages </td> </tr> <tr> <td><ul type="square"> <li>An offshore asset protection trust is an irrevocable trust formed in a foreign jurisdiction, such as Nevis, Grand Cayman, or Jersey. </li> <li> It typically provides certain asset protection and tax advantages because all control over the assets contributed to the trust has been relinquished. </li> <li>An offshore asset protection trust will typically have a Trustee in the foreign jurisdiction of choice. “Going offshore” permits clients to legally take advantage of foreign laws favorable to protecting their assets and privacy, while simultaneously deterring creditors and lawsuits. </li> </ul> </td> </tr> <tr> <td><span class="style101">Disadvantages</span></td> </tr> <tr> <td class="style104"><ul> <li class="style108">This type of trust, once established, generaly cannot be amended or canceled. </li> </ul></td> </tr> <tr> <td class="style104"><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /><img src="../images/dot2.gif" width="110" height="1" /></td> </tr> <tr> <td class="style104"> </td> </tr> <tr> <td class="style104">Life<a name="LIT" id="LIT"></a> Insurance Trust </td> </tr> <tr> <td class="style101"> </td> </tr> <tr> <td class="style101">Advantages </td> </tr> <tr> <td><ul type="square"> <li>If done properly, this trust ensures that the life insurance will not be included in the value of your estate.</li> <li>May be used as a wealth replacement vehicle or to provide liquidity to pay estate taxes.</li> </ul></td> </tr> <tr> <td><span class="style101">Disadvantages</span></td> </tr> <tr> <td><ul type="square"> <li>The trust is irrevocable and generally no changes may be made once it is created.</li> <li>This type of trust, once established, cannot be amended or canceled. </li> </ul></td> </tr> <tr> <td> </td> </tr> <tr> <td> </td> </tr> </table> </div></th> </tr> </table> </td> </tr> </table> <table width="90%" border="0" align="center" cellpadding="0" cellspacing="0"> <tr> <td width="57%"><p align="justify" class="style73"><a href="../Legal-Estate Planning.html"><img src="../../images/arrow.jpg" width="45" height="41" border="0" /></a><br /> </p> </td> </tr> <tr> <td class="style63"><p class="style15"> </p> <p align="justify" class="style15">Legal services provided by the Law Offices of Frye & Associates, P.L. are separate and independent of services offered by Frye Financial Center. 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