When setting up a trust in Georgia, you may discover that there are many different types of revocable and irrevocable trusts that go by many different names. While this may be confusing, trusts are set up for specific reasons, and the name of the trust usually describes the purpose of the trust accurately.
If you are looking to avoid or reduce taxes, you may want to consider setting up an irrevocable trust. However, you will want to seek the advice of a skilled Norcross estate planning lawyer since irrevocable trusts can be complicated and go by many different names including:
- Generation-skipping trust (also called a dynasty trust) – With this type of trust, money and assets are passed down tax-free to the grantor’s grandchildren, skipping a generation. This means the grantor’s children do not take the assets, which allows the grantor to avoid estate taxes that would have applied if the assets were passed to the children instead of the grandchildren. This type of trust can actually benefit the grantor’s children too because the children can be income beneficiaries but never own the property. This type of irrevocable trust is a good option for wealthy families to reduce estate taxes.
- Bypass trust (also called family trust or credit shelter trust) – This type of trust is used by spouses to avoid estate taxes. When the first spouse passes away, the majority of his or her estate is placed into a trust. This allows the surviving spouse to use the property and even draw income from the property, but the surviving spouse doesn’t own it. This way, a spouse can pass an estate to the other spouse tax-free.
- Irrevocable life insurance trust – This type of trust reduces estate taxes by removing one’s life insurance proceeds from a taxable estate. This gives the trust ownership of the insurance policy, which will pay estate costs following the grantor’s death and will provide the beneficiaries with tax-free cash. A grantor cannot borrow against the policy or change beneficiaries once it is removed from the estate. In order for this trust to be valid, it has to exist at least three years prior to the grantor’s death.
While irrevocable trusts can help protect property and avoid estate taxes, they cannot be changed. When determining which type of trust is right for you and your heirs, speak with a knowledgeable Gwinnett County estate planning attorney at (770) 487-8999 to learn more about your Georgia estate planning options today.