Here's another interesting post from our friends at Dummies. Check it out:
Trusts are an important part of your estate plan when you want to leave money to your minor children. Trusts ensure that money, managed by a trustee, is set aside and made available to them when they reach a certain age. Trusts are often complex, time consuming to set up and oversee, and cost you money. So you should have a good reason to go to all this trouble!
Here are some common benefits and objectives of using trusts:
Avoiding taxes: One common tax-saving trust is an irrevocable life insurance trust. After you die, the proceeds from your life insurance policy (the death benefit amount) are added back into your estate, often turning an estate that isn’t subject to federal estate taxes into an estate that needs to write a substantial check to the IRS!
However, an irrevocable life insurance trust shelters life insurance death benefit proceeds from estate taxes. After setting up the trust, you still have life insurance, and your beneficiary or beneficiaries still receive the proceeds from your policy upon your death. But now, estate taxes may not be a problem.
Avoiding probate: By keeping certain property out of your probate estate, you may be able to avoid many of the hassles, costs, and lack of privacy concerns related to probate.
Protecting your estate (and your beneficiary’s or beneficiaries’ estate): One of the primary uses of trusts is to protect your property even after it becomes someone else’s estate.
For example, suppose that you want to leave $500,000 to your only son, but you’re concerned that before you can say, “sail around the world,” he will have spent the entire half million.
You can use a trust to parcel out the money to your son as you see fit. The trust can give him a little bit each year for some duration, and then a final lump sum at some age when you think he’ll be mature enough to protect the money as if he had actually earned it himself.
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