When setting up their final affairs in Michigan, many people consider a trust. Trusts are attractive for a number of reasons. They may hold off estate taxes and may prevent assets from passing through probate. Trusts also help to safeguard the financial interests of minors. However, that all depends on which trust a person chooses.
CNN recommends that a solid trust plan should include a health-care proxy, will, living will and the trust setup. It is also important to note that any asset covered by the trust must be retitled in the name of the trust. Some people may wonder what is the point of a will if they have a trust in place. The will covers the “pour-over assets” that are not included in the trust.
Here are some of the types of trusts that people may choose from when estate planning:
- Qualified personal residence trust — may allow an individual or couple to give their home as a future gift while maintaining current residence for a stipulated number of years
- Generation-skipping trust — to leave assets to beneficiaries two generations or more away, such as grandchildren
- Qualified terminable interest property trust — recommended for blended families
- Irrevocable life insurance trust — may protect life insurance from taxes
- Credit-shelter trust — may protect an inheritance from estate taxes
MarketWatch also reminds people to consider how trusts may affect finances while the owners of the trust are still alive. While trusts help to reduce tax payments for heirs, they may increase tax liabilities for the person who created the trust. When investing money in a trust, people may also wish to consider safety and risk, availability of funds if needed immediately and how well the rate of return keeps up with inflation.