Trusts are an important facet in the estate plans of many Massachusetts residents. Trusts can be created to meet a variety of unique needs such as tax minimization, probate avoidance or creditor protection.
The most common type of trust used by our clients is the revocable trust. Also known as the “living trust,” this estate planning tool allows assets to be added or subtracted over the years as needs and circumstances change.
Additionally, a revocable trust can be set up so that the remainder of the trust creator’s estate automatically “pours over” into the trust upon death, thereby serving the same purpose as a will. However, a revocable trust allows individuals to transfer assets to beneficiaries without the hassle, exposure and expense of the probate process.
Our Massachusetts clients with significant estates often choose to also create what’s known as an irrevocable trust. This estate planning tool allows trust creators to set aside assets for certain beneficiaries while reducing the size of their taxable estates.
Once contributed to an irrevocable trust, the assets are not accessible — neither to the trust creator or creditors of the beneficiaries.
Irrevocable trusts can also be used as a way to maximize life insurance proceeds for beneficiaries. While life insurance benefits are income tax free to the beneficiary, they are included in the decedent’s taxable estate. The funds are also potentially taxable when the beneficiary dies and are included in his or her estate as well.
In some cases, life insurance funds can cause the decedent’s and the beneficiary’s total estate to exceed the state or federal “death tax” threshold, causing negative tax consequences. An irrevocable life insurance trust can prevent that from happening.
To find out more about how your estate plan could benefit from various trust options, please visit our Boston Trust Lawyers page.