Tax management
Certain types of trusts, such as irrevocable trusts and charitable remainder trusts, can help significantly reduce estate taxes and distribute income in a tax-efficient manner. Most people are familiar with the idea of eliminating taxes while passing wealth to heirs.
However, different types of trust structures can be embraced for different needs. A charitable remainder trust, for example, can provide the settlor with income during their lifetime while donating the remainder to charity, offering tax deductions via charitable donation exceptions.
Caring for beneficiaries
Trusts are an important tool for managing the assets of people who might be unable to handle their affairs, such as minors or people with disabilities. A special needs trust, for example, allows assets to be held for a beneficiary without excluding them from income derived from Social Security or Medicaid. Trusts for minors can be set up to hold assets until they reach a certain age.
Identity protection
While walking down the streets of Mayfair in London or the Upper West Side of New York City, one might be unaware that many of the apartments are actually owned by LLCs, which are owned by trusts, many in offshore jurisdictions. Instead of John Doe owning an apartment, it can be an LLC owned by a trust, with a law firm as the only name on the paperwork. Trusts are great for shielding the identities of those who want to hold assets without revealing who they are.
Type of trusts
Revocable trusts
Also called "living trusts," revocable trusts are created by a grantor and can be altered, dissolved, or "revoked" at any point in their lifetime. Unlike other types of trusts, grantors will serve as the trustee of the trust, and the main benefit is usually just to avoid the probate court with asset distribution since there are no tax benefits during the grantor's lifetime.
