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Trust Types

A trust is a three-part agreement in which you, as the trust’s grantor, transfer legal title to assets to a trustee for the purpose of benefiting one or more third parties (beneficiaries). A trust may be revocable or irrevocable and may be included in a will to take effect at the end of your lifetime.

As Grantor, you can be your own trustee, or name a trustee to handle investments and manage the portfolio. In some cases, you can work with the trustee on major decisions or the trustee can be assigned full authority to act on your behalf. A trustee can be an individual such as a relative, friend, attorney or accountant, or it can be an entity such as Dunham Trust Company that offers experience in areas such as taxation, estate law and money management.

Assets placed in an irrevocable trust are protected in numerous ways since they are no longer legally considered your property. That doesn’t mean that you don’t have a say in how these assets are managed. In fact, a trust can help ensure that your wishes are carried out, even after your death.

More and more people are discovering the potential benefits of trusts, including asset protection, reducing tax obligations, and defining management of assets in a private, effective way. Your Dunham Trust Company senior trust officer can help you evaluate what type of trust may be appropriate for your specific circumstances.

Different Trusts for Different Needs

Revocable Trust
With a typical Revocable Trust, you are the owner of trust assets and are taxed on the income earned. Generally, the only way you can avoid taxation on trust income and avoid including trust property in your estate, is to give up control and benefits of the assets that you assign to the trust and your right to revoke or amend the trust.

Revocable trusts can be changed at any time. For this reason, the government considers the specified assets to still be part of your taxable estate. In some instances, your heirs may have to pay estate taxes on assets after your lifetime. Most revocable trusts become irrevocable at the death or disability of the grantor.

Irrevocable Trust
An Irrevocable Trust is an arrangement by which you permanently relinquish ownership and control of property, usually as a gift to the trust. The trust then stands as a separate taxable entity and pays tax on its accumulated income. Trusts typically receive a deduction for income that is distributed on a current basis.

You cannot change an irrevocable trust. Assets are valued at time of transfer into the trust and this value is included in your estate. Irrevocable trusts can also be useful in life insurance planning. For instance, an irrevocable life insurance trust can avoid probate costs and estate taxes on insurance proceeds paid to the trust at the time of your death. Irrevocable trusts are also useful in providing children with funds for education and other specific purposes.

Irrevocable trusts can involve a multitude of complex tax rules. Your Dunham Trust Company senior trust officer can work together with your tax planning professional to help you work toward obtaining optimal tax results.

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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