Trusts are powerful estate planning tools that can be used to avoid taxation and provide financial security for surviving dependents

By Barbara Craig, Attorney at Law

Trusts are generally created for three primary purposes: to reduce or eliminate estate taxes; to avoid the probate process, and to protect property in the estate from third-party interference. There are several types of trusts used in estate planning. Each trust has a specific purpose and is utilized based on the needs and intent of the settlor. Some common types of trusts are summarized below.

Intervivos Trust or Living Trust – used to transfer ownership of assets from the settlor to the trust during the lifetime of the settlor. Settlor is typically the initial trustee and can modify the terms or revoke the trust during his lifetime.

Marital Trust – used to provide support and benefits to the surviving spouse for their lifetime. Assets remaining upon her death are part of their taxable estate.

san pedro estate planning lawyerBypass Trust – used by spouses who plan their estates together to leave property to each other, ensuring that the estate assets will be taxed only once between the two of them.

Children’s Trust – used to transfer trust assets to the settlor’s children, but assets are held in trust and inaccessible to the children until they reach a certain age or life milestone.

Pet Trust – used to provide for the care, support, and maintenance of a pet(s) in the event of the owner’s disability or death.

Generation Skipping Trust – used to transfer assets to grandchildren or later generations while avoiding taxes upon the death of the settlor’s children.

Special Needs Trust – used to distribute trust assets to a disabled family member to improve his or her quality of life while still maintaining eligibility for government benefits that would normally be lost if the assets were transferred directly to the family member.

Land Trust – used to hold property in trust to conceal the name of the true owner of the property.

Qualified Terminable Interest Property Trust – used to provide income to the surviving spouse. Upon her death, the trust assets then go to the additional named beneficiaries previously designated by the settlor. Most often used when the settlor has been married more than once.

Grantor Retained Annuity Trust – an irrevocable trust that is used when a portion of the trust assets are to be paid out to the settlor during a pre-defined period of time. At the end of the term, the trust assets are distributed to the beneficiaries and gift taxes are avoided.

Testamentary Trust – a trust set up by the terms of a person’s will, which goes into effect upon his death. This form of trust does not avoid the probate process since the trust was not funded during the settlor’s lifetime and the assets were still under the direct control of the settlor at the time of his death.

Irrevocable Life Insurance Trust – used to exclude life insurance proceeds from the decedent’s estate. Often employed in conjunction with other trusts and estate planning tools, this type of trust can provide a source of assets which can be utilized by the beneficiaries to pay estate taxes or other expenses associated with settling the estate, eliminating the need to access the decedent’s other trusts.

Choosing and creating a trust can be complex, so a consultation with an experienced estate planning attorney is necessary prior to making any decisions on which trust to use.

Do you have questions about trusts or estate planning to protect your financial interests and provide security for your surviving dependents? Contact Estate Planning Attorney Barbara Craig to schedule a free consultation. Serving clients in the South Bay area including Torrance, San Pedro, Lomita, Harbor City, Carson, Wilmington, Long Beach and other nearby communities.


Photo courtesy Ambro