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Miscellaneous Related Trust Types

An Insurance Trust is set up for the purpose of owning a life insurance policy. With a standard life insurance policy, proceeds are subject to estate tax at the end of your lifetime. However, if you transfer ownership to a life insurance trust, proceeds will be free of estate tax. Given current estate tax rates, an insurance trust can significantly lower your estate tax liability.

A Living Trust is revocable, and allows you to be both trustee and beneficiary of a trust while you are alive. You maintain control of the assets and receive all income and benefits. At the end of your lifetime, a designated successor trustee distributes remaining assets according to terms of the trust, thereby avoiding the probate associated with a will. Should you become incapacitated during the term of the trust, your successor or co-trustee can take over management.

A Credit Shelter Trust helps you make the most of you and your spouse’s unified credits by arranging for your estate to be divided into two parts at the end of your lifetime. One part passes directly to your spouse tax free because of the unlimited marital deduction. The second part is placed in a credit shelter trust and your unified credit exclusion is applied to those assets. If these assets are less than or equal to the exclusion amount, no estate taxes are due. A credit shelter trust can pay your surviving spouse a lifetime income and then benefit children after your spouse’s death. Assets won’t be taxed as part of your spouse’s estate. The assets originally passed to your spouse under the unlimited marital deduction are subject to estate taxes, though your spouse’s unified credit exclusion can help offset tax on some or all of those assets upon the surviving spouse’s death.

A Generation-skipping Trust leaves money to grandchildren. It can help preserve the $2,000,000 generation-skipping tax exemption and avoid tax on bequests exceeding that amount. The generation-skipping exemption is equal to the federal estate tax exclusion. For example, if you put $50,000 in a generation-skipping trust and allow it to accumulate earnings for many years, your lifetime exemption is still the original $50,000.

A Crummey Trust makes gifts of assets to children. The crummey trust is structured to assure a current gift removes the assets from your estate while keeping the assets in trust for a child until an age, or series of age steps, that you deem appropriate. A crummey trust creates a present interest by giving a child the right to withdraw each gift to the trust for a period of 30 days. Once the withdrawal deadline lapses, the assets remain in the trust until distribution in accordance with the terms of the trust.

The information above is general in nature and not intended as legal or tax advice. Please consult with your tax professional or attorney regarding guidance for your individual circumstances. Dunham Trust Company recommends you authorize our senior trust officers to work in tandem with your trusted financial professionals.

Such trusts are used to develop a vehicle for donations to a favorite charity, which also allows for the reduction of income taxes through a charitable deduction and favorable tax treatment at the date of the gift by non-recognition of built-in-capital gains.

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