Revocable Trust

A Revocable Trust, also known as a living trust, is a legal arrangement that allows an individual, the grantor or settlor, to transfer assets into or out of a trust during their lifetime. The grantor retains control over the trust and can make changes to it or revoke it entirely. Typically, the grantor serves as the initial trustee, designating themselves as the primary beneficiary during their lifetime. The Trust may also designate other beneficiaries. The grantor is able to transfer their assets, like real estate, bank accounts, investments, and personal property into the trust, allowing them to become trust assets. The Trust will also outline the terms of how the assets are to be managed and distributed during their lifetime and after their death.

Reasons to consider establishing a Revocable Trust in Connecticut:

Privacy and Avoidance of Probate: Revocable Trusts allow for the private and efficient transfer of wealth to beneficiaries outside the probate process, ensuring that the distribution of assets remains confidential and free from potential delays associated with the probate court.

Control and Flexibility: One of the biggest reasons for deciding to create a Revocable Trust is that individuals enjoy the freedom they have to be able to modify, amend, or revoke the trust at any time, which provides flexibility and control over their assets during their lifetime.

Incapacity Planning: A Revocable Trust allows you to include provisions for the management of assets in case the grantor becomes incapacitated. This ensures a seamless transition of control.

Complex Asset Portfolios: Those with complex assets, such as real estate in multiple states, investment portfolios, or business interests can benefit from centralized management within the trust. With a Revocable Trust, if you have out of state property, you are able to avoid probate in other states.

Tax Treatment: In relation to tax purposes, a Revocable trust is generally considered a pass-through entity. Income earned by the trust is reported on the grantor’s individual tax return.

A Revocable Trust can be extremely beneficial for people with certain wishes and goals, however, a Revocable Trust differs from an Irrevocable trust in that it is typically not used to avoid probate. If you have questions about which type of trust is right for you and your estate plan, schedule a consultation with our Estate Planning team today.

Irrevocable Trust

An Irrevocable Trust is a document that cannot be altered, amended, or revoked by the grantor once it is established without the consent of the beneficiaries. The document must outline the terms of the trust, including the beneficiaries, distribution rules, and other provisions.

An Irrevocable Trust is beneficial in that it can provide asset protection from creditors, taxes and probate court. However, it must be known that this trust cannot be changed in any way once it is established, without the consent of all beneficiaries. This differs from a Revocable Trust, which allows you to continue to alter it or revoke it during your lifetime.

Reasons to consider establishing an Irrevocable Trust in Connecticut:

Asset Protection: Irrevocable Trusts provide a strong level of asset protection. Assets that are placed in the trust can be shielded from the grantor’s creditors and legal claims. This is very important for individuals who are looking to safeguard their wealth from potential lawsuits or financial difficulties.

Estate Tax Planning: Assets that are transferred into these trusts are generally removed from the grantor’s taxable estate, which would reduce the potential for estate tax liability.

Medicaid Planning: Transferring assets into an Irrevocable Trust allows individuals to reduce their countable assets, which would potentially make them eligible for Medicaid benefits to cover long-term care expenses.

Control Over Distribution: The grantor of the trust can specify how assets are to be distributed to the beneficiaries and at what time. The terms can be made specific to the grantors’ wishes, whether that be to distribute assets when a beneficiary turns a specific age or for specific reasons such as education, for the purchase of a home, or other significant life events.

If you have questions about which type of trust is right for you and your estate plan, schedule a consultation with our Estate Planning team today.

Testamentary Trust

A Testamentary Trust is typically created within a person’s last will and testament, and only becomes effective upon the death of the testator. The Trust assigns a trustee or trustees who will be responsible for administering the trust and its terms to carry out the wishes of the testator and act in the best interest of the beneficiaries. The terms and conditions of the trust are outlined in the will, providing instructions on how the assets should be distributed and managed.

Testamentary Trusts can provide orderly distributions of assets, which can be especially useful when there are challenging family or financial situations. They can be utilized to protect assets for minor children or individuals who may not be capable of managing their inheritances independently. Testamentary trusts are usually utilized to minimize estate taxes and provide ongoing financial support to beneficiaries.

It is important to note that Testamentary Trusts are only activated once the probate process is complete, which can potentially lead to delays in asset distribution. Additionally, the costs associated with probate, such as court fees and legal expenses can be higher than those associated with living trusts. If you have questions about which type of trust is right for you and your estate plan, schedule a consultation with our Estate Planning team today.

QTIP Trust

A QTIP Trust refers to a Qualified Terminable Interest Property Trust. It is a type of irrevocable trust that allows a surviving spouse to receive income from the trust, while preserving the ultimate distribution of trust assets to other beneficiaries, which are typically children or heirs designated by the grantor.

Reasons to consider establishing a QTIP Trust in Connecticut:

Providing for a Surviving Spouse: The primary function of a QTIP Trust is to ensure ongoing financial support for a surviving spouse while also preserving the ultimate distribution of those assets to other beneficiaries.

Control Over Ultimate Distribution: This Trust gives the grantor control over the ultimate distribution of the remaining assets after the surviving spouse’s death. This way, the spouse can receive their benefits while they are living, and the grantor can also control the division of assets after the death of the surviving spouse. This works especially well for those involved in blended families, where individuals may have children from previous marriages. It allows the grantor to provide for the current spouse while also ensuring that the assets ultimately pass to children.

Marital Deduction for Estate Tax Planning: Assets transferred to the QTIP Trust qualify for the marital deduction, which means that they are not subject to the estate tax upon death of the first spouse. This enables the deferral of estate taxes until the death of the surviving spouse.

Creditor Protection: Assets held within a QTIP Trust may be protected from the policy owner’s creditors, depending on the specific legal framework of the trust and state laws. This protection can be particularly valuable in scenarios where the insured individual faces potential creditor claims.

A QTIP Trust can be very useful for those who have complex family dynamics and specific estate planning goals. It can be advantageous for avoiding estate taxing upon the death of the first spouse. It also provides a level of protection from creditors. If you have questions about whether a QTIP Trust is right for you and your estate plan, schedule a consultation with our Estate Planning team today.

ILIT

An ILIT refers to an Irrevocable Life Insurance Trust and is specifically designed to own life insurance policies. It allows individuals to exclude life insurance proceeds from their taxable estate, thereby reducing potential estate taxes upon their death. ILITs can be particularly advantageous for individuals with significant assets and those who anticipate their estates might be subject to Connecticut Estate Taxes. As of 2023, Estates with a value over $12.92 million are subject to Connecticut Estate Tax.

Reasons to consider establishing a ILIT in Connecticut:

Estate Tax Reduction: One of the primary reasons for setting up an ILIT is to reduce the size of an individual’s taxable estate. Life insurance proceeds owned by the ILIT are generally not included in the insured individual’s estate, which can reduce the overall estate tax burden.

Creditor Protection: Assets held within an ILIT may be protected from the policy owner’s creditors, depending on the specific legal framework of the trust and state laws. This protection can be particularly valuable in scenarios where the insured individual faces potential creditor claims.

Control Over Distribution: Through an ILIT, the insured can specify how the insurance proceeds will be distributed to the beneficiaries, ensuring that the funds are used for specific purposes, such as providing income for a surviving spouse, paying off debts, or funding a child’s education.

Privacy and Avoidance of Probate: ILITs allow for the private and efficient transfer of wealth to beneficiaries outside the probate process, ensuring that the distribution of assets remains confidential and free from potential delays associated with the probate court.

Other types of trusts, such as revocable living trusts or testamentary trusts, serve different purposes, such as asset management during the grantor’s lifetime or the distribution of assets after the grantor’s death, but they may not have the same focus on reducing estate taxes through life insurance. If you have questions about which type of trust is right for you and your estate plan, schedule a consultation with our Estate Planning team today.

DAPT

A Domestic Asset Protection Trust, or DAPT, is a type of irrevocable trust that allows an individual to protect their assets from creditors, lawsuits, and other potential financial threats. DAPTs are used to shield assets from potential future creditors while still allowing the grantor to benefit from the assets. This type of trust is particularly beneficial for individuals seeking to protect their wealth for future generations, as well as those who may be at risk for lawsuits, like business owners or certain types of professionals.

Reasons to consider establishing a DAPT in Connecticut:

Creditor Protection: The primary purpose of a DAPT is to shield assets from creditors. By placing assets in the trust, a grantor can protect them from potential future lawsuits, claims, or creditors seeking to collect debts.

Estate Planning: DAPTs can be an essential component of your estate planning strategy. By transferring assets into the trust, the grantor can ensure that their assets are passed on to their chosen beneficiaries while protecting them from potential creditors and legal liabilities.

Tax Benefits: Depending on the specific circumstances and the type of assets transferred, a DAPT may offer potential tax benefits. While our experienced attorneys can guide you on this, it is crucial to consult with a financial advisor or tax professional to understand the specific tax implications of setting up a DAPT.

Flexibility and Control: While DAPTs are irrevocable trusts, some flexibility can be built into the trust structure, allowing the grantor to retain some control over the assets and how they are managed within the trust.

Asset Management: DAPTs often involve the appointment of a trustee who manages the assets in the trust. This can be beneficial for individuals looking to have a professional oversee their assets and ensure their effective management and distribution.

It’s important to understand that DAPTs are specifically designed to offer asset protection from future creditors, which distinguishes them from other trusts. In comparison, a revocable living trust does not provide the same level of creditor protection as the assets in such trusts can typically be reached by creditors. If you have questions about which type of trust is right for you and your estate plan, schedule a consultation with our Estate Planning team today.