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Trusts: An Essential Planning Tool
- 1. Trusts: An Essential Planning Tool
January 30, 2013
Presented by
Michael C. McBratnie, Esq.
and
Gregory M. Wirt, Esq.
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 2. Introduction
Basic Concept of a Trust
A legal relationship in which one persons
agrees to hold property or assets for
another.
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 3. Introduction
Four Elements to a Trust
- Grantor/Settlor - person who creates the trust
- Trustee - person or entity that agrees to hold the
trust assets for the beneficiary
- Beneficiary - person that benefits from the trust
- Trust Assets - assets or property contributed to the
trust by the grantor/settlor
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 4. Introduction
Grantor/Settlor
Trust
Assets
Beneficiary Trustee
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 5. Types of Trusts
Testamentary Trust
- A trust created under an individual’s Last
Will and Testament
- Becomes effective upon the death of the
decedent
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 6. Types of Trusts
Inter-Vivos Trusts
- A trust created during the settlor’s lifetime
- Becomes effective upon execution of the
trust document and funding of the trust
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 7. Types of Trusts
Revocable Trusts (“Living Trusts”)
- An inter-vivos trust created during the settlor’s lifetime that can
be amended or revoked by the settlor at any time
- Includes provisions governing distributions of trust assets
during the settlor’s lifetime and following the settlor’s death
- May serve as a Will substitute
- Assets within the trust avoid probate upon the settlor’s death
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 8. Types of Trusts
Irrevocable Trusts
- A trust that can not be modified or terminated after
being created by the settlor
- Irrevocable trusts may be inter-vivos or
testamentary trusts
- One of the primary purposes of an inter-vivos
irrevocable trust is to avoid “incidents of ownership”
by the settlor and exclude the trust assets from the
settlor’s estate
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 9. Types of Trusts
Grantor Trust
- Grantor trusts are created if the “owner” has
certain interests in the trust or retains certain
powers over the trust under Sections 671 –
679 of the Code
- All income of the trust is reported on the
settlor’s income tax return
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 10. Types of Trusts
Intentionally Defective Grantor Trust
- Irrevocable trust in which the settlor
intentionally retains powers or interests to
cause the trust to be a grantor trust
- Settlor reports the trust income on his/her
income tax return but the trust assets are
excluded from the settlor’s estate
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 11. Types of Trusts
Grantor Retained Annuity Trust (“GRAT”) and
Grantor Retained Unitrust (“GRUT”)
- Created by the settlor transferring assets into an
irrevocable trust and retaining the right to an annuity
interest for a fixed term of years
- When the term ends, assets remaining in the trust
are distributed to the remainder beneficiaries,
outright or in further trust
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 12. Types of Trusts
Charitable Remainder Annuity Trusts (“CRAT”)
and Charitable Remainder Unitrust (“CRUT”)
- Irrevocable trust with a non-charitable annuity
interest and charitable remainder interest
- Donor receives an income tax deduction for the
present value of the charitable remainder interest
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 13. Types of Trusts
Charitable Lead Annuity Trust (“CLAT”) and
Charitable Lead Unitrust (“CLUT”)
- Irrevocable trust with a charitable lead interest and
non-charitable remainder interest
- Provides a large charitable income tax deduction in
the first year and allows a “discounted” gift to the
non-charitable beneficiaries
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 14. Types of Trusts
Qualified Personal Residence Trust (“QPRT”)
- An irrevocable trust that is designed to reduce the
value of a personal residence for gift tax purposes
- Settlor transfers the personal residence into the
QPRT and is permitted to continue living in the
residence for a term of years
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 15. Types of Trusts
Irrevocable Life Insurance Trust (“ILIT”)
- Irrevocable trust designed to own a life insurance
policy on the life of the settlor
- ILIT is the owner and beneficiary of the policy
- Intended to avoid inclusion of the life insurance
policy in the settlor’s estate
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 16. Types of Trusts
Dynasty Trust
- Irrevocable trust designed to last for multiple
generations (or forever) without estate, gift or GST
taxes
- May be limited by the Rule Against Perpetuities
- Repeal of the Rule Against Perpetuities by states
has increased the popularity of Dynasty Trusts
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 17. Types of Trusts
Spousal Lifetime Access Trusts (“SLAT”)
- Irrevocable trust that names the settlor’s
spouse as a beneficiary and possibly
settlor’s descendants as additional
beneficiaries
- Includes provisions that allow distributions to
the spouse during his or her lifetime
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 18. Asset Protection
Spendthrift Trusts
Self-Settled Asset Protection Trusts
- Domestic (Alaska, Delaware, Nevada, etc.)
- Off-shore
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 19. PA Uniform Trust Act
Is an irrevocable trust really irrevocable?
- Non-judicial settlement agreements
- Modification or termination of trusts upon consent
of the settlor and beneficiaries
- Modification or termination of trusts by the
beneficiaries with court approval
- Federal estate tax consequences?
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild
- 20. Thank You.
Michael C. McBratnie, Esq.
610.458.4946
mmcbratnie@foxrothschild.com
Gregory M. Wirt, Esq.
610.458.3113
gwirt@foxrothschild.com
Trusts: An Essential Planning Tool
© 2013 Fox Rothschild