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Types of Trusts – Choices in Distributing Your Assets

Choosing from the types of trust is the appropriate first step to protect and manage one’s investments for the future. A trust is a legal agreement where a person or company holds an asset for another person’s benefit.

Types of TrustsPHOTO BY FLICKR.COM/WHOLOGWHY

Types of Trusts - Best Ways to Secure the Future

There are three common types of trusts namely: discretionary family trusts, unit trusts and hybrid trusts. Discretionary trust is where family businesses and other assets are held for protection and for the family members’ tax planning which is advantageous in terms the low tax brackets from assets' generated income. Among the types of trusts, the hybrid trust is the one that is divided into a number of units or shares. Essentially, one’s power over the asset will depend on the number of units he owns. Such entitlement will determine his part in the capital gains, voting privileges and income shares. Hybrid trusts features the essential elements of discretionary trust and unit trust. The trustee can distribute to both beneficiaries on low tax rates and unit holders as well.

Bypass Trust - Enjoy Long Term Benefits

When an asset is held in bypass trust, the beneficiary is able to enjoy maximum income of the assets as well as full tax exemptions in the event of spouse’s death. This is most commonly used by married couples that have conjugal assets that exceed the sheltered estate tax credit. Since a bypass trust is a long term device for estate planning, it is irrevocable married couples to insure the family’s future. Thus to protect the trust and utilize the tax exemption, the bypass trust specifies the purposes wherein the beneficiary is able to withdraw funds like education, health and maintenance. It also gives the right for the spouse to pass on the trust to another beneficiary in the event of his own death.

Revocable Trusts - The People Behind

The three parties of revocable trusts are the settlor, the trustee and the beneficiary. The settlor also called the grantor is the creator of the trust and the one that provides the funds for it. The settlor can be one or many people like a husband and wife forming a trust for their family. The trustee is the person who holds and manages the trust according to its guidelines and terms. The beneficiary is the recipient of the principal amount and income of the trust. The trust is deemed revocable when the settlor reserves the right to revoke or amend the trust within his lifetime.

Written by Dennis Patterson

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