Trusts come with many distinct advantages which wills do not offer. For instance, according to CNN Money, trusts allow you to set conditions on how and when the assets of your Illinois estate will be distributed after your death, reduce gift and estate taxes, protect your assets from lawsuits and creditors and distribute your assets to heirs without the cost, publicity or delay or probate. That said, though trusts are valuable estate planning tools, they are not created equal. There are various types of trusts, some more uncommon than others, that offer unique advantages and disadvantages.
One of the more infrequently-used types of trusts is the irrevocable life insurance trust. When you elect to use an ILIT, you forfeit your right to borrow against your life insurance policy or to change beneficiaries. The tradeoff is that, when you pass away, your life insurance policy is no longer part of your taxable estate. Moreover, the trustee can use the proceeds from your policy to pay estate costs and distribute to heirs.
A qualified personal residence trust is another uncommon but useful estate planning tool. With a QPRT, you can remove the value of your permanent residency or vacation home from your estate and gift it to your children tax-free. A QPRT is particularly useful if you suspect your home will appreciate in value in the future. Though your home becomes the property of the QPRT, you can set stipulations that allow you to retain control of your home for, say, a period of 10 year. When your designated heirs receive the home, the IRS assumes it is worth less than its present-day value.
The downfall of a QPRT is that, should you die before the stipulated period is up, the IRS will calculate the full market value of your home into your estate. To enjoy the benefits of this type of trust, you must outlive it and then either move out of your home at the end of the grace period or pay your heirs fair market rent to continue residing there.
If your family is one in which there have been several divorces, remarriages and stepchildren, you may wish to use a qualified terminable interest property trust. A QTIP allows you to direct your assets to certain relatives and beneficiaries, and to ensure that your wealth does not pass to others’ children.
This article should not be construed as legal advice. The content is for informational purposes only.