What is a generation-skipping trust?

A generation-skipping trust is a way for assets, funds, and inheritances to be transferred from one generation to those who are two generations away. A generation skipping trust has a grandchild as beneficiary.

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What is an AB Trust?

A modern AB trust is a form of bypass trust that uses a couple’s marital estate and gift tax deductions to avoid excessive estate taxes. An AB trust is ideal for couples with estates larger than 4 million dollars.

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What is a QTIP trust?

A qualified terminable interest property trust (Q-Tip Trust) is a marital trust for which a federal estate tax election can be made so as to qualify the trust property for the marital deduction. A Q-Tip trust must meet specific federal requirements to be considered valid.

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My accountant told me not to leave money to my grandchildren because the transfer tax would be too high. Was he correct?

Whether you should leave money to your grandchildren because the transfer tax would be too high depends on the size of your estate. The generation skipping transfer tax (GSTT) applies, on top of Federal Estate Tax, to certain amounts of money left to third-generation beneficiaries. For information on the current value subject to the generate skipping transfer tax, consult an estate planning attorney.

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What is a qualified personal residence trust (QPRT)?

A QPRT, qualified personal residence trust, is a form of grantor retained income trust. The purpose of this type of trust is to place assets into an irrevocable trust and only grant the income from the trust to the trustor. The actual asset in the trust will eventually pass to a listed beneficiary such as a child or grandchild. The advantage to a QPRT is that it freezes the value of the asset in the trust allowing it to pass with fewer tax consequences for the beneficiary.

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What is a Totten trust?

A Totten trust is not actually a type of trust at all. In fact, it is a type of payable on death account that is payable to another after the demise of the account owner. The Totten trust earned its name from a landmark case in which the court found in favor of the named person on the account over the actual family of the deceased person. Not all states recognize the Totten trust, so it is always best to speak with an attorney before using this method for your estate planning.

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What is a Crummey trust?

Crummey is the name of a taxpayer who succeeded getting an annual exclusion by establishing a trust containing withdrawal rights for the benefit of minor children. A Crummey trust is a special form of trust that contains a provision allowing one or more beneficiaries the right to withdraw the lesser of either the annual exclusion amount or the value of the gift property transferred into the trust. Crummey trusts specify the time each year when the funds can be withdrawn to ensure that the beneficiary does not incur gift taxes. Crummey trusts are most commonly created for minors and irrevocable life insurance trusts.

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What is a bypass trust?

A bypass trust is a trust designed to contain property that bypasses the surviving spouse’s estate thereby avoiding inclusion in that later estate. Bypass trusts are especially useful for spouses with large estates who are eventually planning to leave the remainder of their estate to children because it reduces the amount of estate taxes owed and aids in avoiding probate court.

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