For some Minnesota residents, establishing a trust may be a helpful if not essential part of their estate planning. Trusts fall into two basic categories: testamentary and living. Testamentary trusts, as established in the will itself, takes effect only after the death of the will’s owner, known as a trustor. A living trust may be enacted while the trustor is still alive.

Some living trusts are revocable, allowing the trustor to maintain control over the trust’s assets as well as the terms of the trust, both subject to change on the trustor’s authority. Other living trusts are irrevocable. This type removes all of the trustor’s authority over the trust.

More complicated trusts can be set up for special circumstances. A credit shelter trust, which is also known as a family trust or a bypass, allows married couples to avoid estate taxes. A generation-skipping trust bequeaths assets tax-free to beneficiaries who are two generations or more removed from the trustor. A qualified personal residence trust can remove the value of an individual’s primary or vacation home from the estate. An irrevocable life insurance trust lets trustors remove their life insurance policy from their taxable estate. In this way, their heirs can use it for estate costs and other purposes. A qualified terminable interest property trust lets individuals who have divorced, remarried and attained stepchildren direct their assets to particular beneficiaries.

The establishment of a trust is a complex process that may go more smoothly with the guidance of an estate planning attorney. The most appropriate beneficiary designations, asset distribution plans and tax arrangements may become clearer with the aid of a lawyer.

Source: CNNMoney, “What kinds of trusts are there?“, December 08, 2014