It is a popular myth that estate planning is only for the rich, with millions and mansions to bequeath to their heirs. In fact, making an estate plan is an incredibly valuable way for New Jersey residents of even moderate means to ensure that their material assets are distributed exactly as they want. Trusts are a form of estate planning that can serve the needs of a variety of people. Different types of trusts are available.
One is a credit-shelter trust. This is also known as a family or bypass trust. With this type, you bequeath a certain amount to the trust in your last will and testament up to the limit of the estate-tax exemption. A person doing this will often leave the rest of their estate to their spouse, tax-free. Money in one of these trusts is free of estate tax even if it grows.
A generation-skipping trust is another possibility. This lets you transfer money to beneficiaries like grandchildren who are your junior by multiple generations. By using this kind of trust, you can transfer monies tax-free.
A qualified personal residence trust is an additional option. It lets you remove your home from your estate, which is a good idea if you expect that it will appreciate in value and would therefor increase an estate tax burden. With the QPRT, you give your home to your children right away while retaining control of it for a specified number of years. That way, it will be assessed at a lower gift value by the IRS.
Of course, there are many important details to consider when looking at these and other trusts as potential options. The best way to examine those details is to do so with the help of a qualified legal professional. They can help make sure that you know enough to choose the right trust for you.
Source: CNN, "Estate planning: Is a trust beneficial?" Sep. 09, 2014