Trustor refers to a person that creates a standard living trust, testamentary trust, land trust, or irrevocable life insurance trust. Trusts which are used protect property from enduring the probate process include a Trustor, Trustee, and beneficiaries.
The Trustor selects a Trustee to manage the trust and designates them within their last will and testament. In regard to living trusts and land trusts, the Trustor is usually the same person as the Trustee until the time of death.
At that time, the individual which is designated in the last Will takes control of the trust fund and is responsible for administering the trust according to directives provided in the Will.
Beneficiaries refer to individuals or organizations that receive estate assets upon death of the Trustor. Trust beneficiaries can include family members, friends, non-profit organizations, schools and colleges, places of worship, and corporations.
The kind of property placed into trusts can range from money, titled property, personal belongings, and business assets. It's important to consult with a professional estate planner to understand tax ramifications and learn about the different types of trusts.
Living trusts are one of the more popular estate planning strategies. These kinds of trusts can be setup at revocable or irrevocable. Trustors are allowed to make changes when needed to revocable living trusts. However, irrevocable living trusts cannot be changed once they are in place.
To receive the tax incentives provided with living trusts, the Trustor and Trustee need to be the same person. In this case, the IRS imposes income tax on the Trustor instead of taxing as a trust asset.
When engaging in trust planning it is important to consider the Trustor Vs Trustee tax issues. Whenever a person other than the Trustor is designated as the Trustee, tax issues become more complicated.
Any time an individual sets up a trust fund and appoints another person as the Trustee and other people as beneficiaries the IRS may view this as the Trustor giving gifts. When this occurs the IRS can impose a gift tax.
Many people establish land trusts to avoid the probate process and save taxes. Real property that is held in a land trust can be designated for transfer of ownership whenever the Trustor desires.
Trust successors can avoid the expensive and time consuming probate process when a land trust has been established. This document allows beneficiaries to sell the property during probate if they do not want to keep the property they have inherited.
Irrevocable life insurance trusts (ILIT) are used by individuals with estate assets valued at more than $2 million. This kind of trust is often setup to help beneficiaries offset inheritance taxes.
Trustors are permitted to supply monetary distributions at certain times throughout the lifetime of beneficiaries or all at once. Additionally, Trustors can provide tax-free monetary gifts of up to $13,000 per beneficiary or $26,000 per married couple each year.
Testamentary trusts are established to conserve or transfer financial assets owned by Trustors. This kind of trust has to comply with statutory requirements established in the state where the trust is filed.
Setting up trusts is a complex process that can result in serious tax consequences if not properly arranged. It is always in your best interest to speak with an estate planner or probate lawyer to ensure assets and beneficiaries are protected.
We offer an extensive estate planning blog that provides further details of the various types of trusts, along with ways to avoid probate and minimize estate and inheritance tax and suggestions for choosing an alternate Trustor. Click here to learn more about available tax savings and estate planning strategies.