Types of wills and trusts

Types Of Wills And Trusts

There are many varieties of wills and trusts to fit the needs of each individual. These documents should be drafted only by a qualified attorney at law.

A few of the more common documents are listed below:

*Basic will: A basic will or simple will generally gives everything outright to a surviving spouse, children or other heirs. Sometimes called an "I Love You" will.

*Will with contingent trust: Frequently, married couples with minor children will pass everything to their spouse, if living, and if not, to a trust for their minor children until they become more mature.

*Pour-over will: The so called "pour-over" will is generally used in conjunction with a living trust. It picks up any assets which were not transferred to the trust during the person's lifetime and "pours" them into the trust upon death. The assets will generally be subject to probate administration, however.

*Tax-saving will: A will may be used to create a testamentary credit shelter trust. This trust provides lifetime benefits to the surviving spouse, without having those trust assets included in the survivor's estate at his or her subsequent death.

*Living trust without tax planning: Generally, the surviving spouse has full control of the principal and income of this type of trust. It's main purpose is to avoid probate. If required, the trust can also be used to manage the assets for beneficiaries who are not yet ready to inherit the assets outright, because they lack experience in financial and investment matters.

*Living credit shelter trust: This type of trust avoids probate and also makes certain that both spouses use their unified credit. Estates of $1,350,000 increasing up to $2,000,000 in 2006 can be passed to children or other heirs, without probate expense or death tax, by a married couple using this type of trust.

*QTIP trust: A type of trust known as a QTIP trust allows the first spouse to die to specify who will receive his or her assets after the surviving spouse dies. Use of the QTIP also permits the deferral of death taxes on the assets until the death of the surviving spouse.

QTIP means "qualified terminable interest property." The income earned on assets in a QTIP trust must be given to the surving spouse for his or her lifetime. After the death of the surviving spouse, however, the assets then pass to beneficiaries chosen by the first spouse to die, frequently, children of a prior marriage.

Even if there are no children of a prior marriage, some estate owners use this type of trust to prevent a subsequent spouse of the survivor from diverting or wasting estate assets. The QTIP trust is often used in tandem with a living credit shelter.

*Qualified domestic trust: Trandfers at death to a noncitizen spouse will not qualify for a marital deduction unledd the assets pass to a qualified domestic trust (QDOT). The QDOT rules require a U.S. trustee (unless waived by the IRS) and other measures which help ensure collection of a death tax at the surviving noncitizen spouse's later demise.

Note: Additional trusts may be used for additional income tax savings or to remove life insurance from the taxable estate, but the above described documents are generally at the center of a persons estate plan.