How a Charitable Lead Trust Works
A charitable lead trust is a trust that pays annually a specified annuity or
unitrust amount to one or more charitable beneficiaries for a specified term of
years or for the life of a named individual or lives of certain named
individuals. Upon termination of the annuity or unitrust period, the remainder
interest passes to, or for the benefit of, one or more noncharitable
How a Charitable Remainder Trust Works
Gifts to a Charitable Remainder Trust can be made in cash, but more often
consist of highly appreciated stock, real estate or a closely held business
interest. In exchange for a charitable gift, the Charitable Remainder Trust
pays income to the trust income beneficiary (usually you and your spouse as
donors) for a fixed period or for life. At the end of the trust (which is
usually your lifetime), the remaining assets pass to one or more of the
charities you have chosen.
How a revocable living trust works during grantor’s life
A living trust, also known as a Revocable Living Trust or a Family Trust is
a legal document that holds title or ownership to your real property and
assets. When you create a Revocable Living Trust you transfer ownership of your
assets to the trust. Transferring assets is typically called
"funding." When you transfer title you DO NOT relinquish any control.
You can still buy, sell, borrow or transfer.
How a revocable living trust works upon grantor’s death
After you pass away, your successor trustee or co-trustee will have the same
responsibilities an executor would have if you would have prepared a will.
However, since your trustee does not have to report to a probate court
everything can be done more efficiently and privately.
Credit Shelter Trust
If you are married and your combined estate exceeds the federal estate tax
exemption, then a credit shelter trust could reduce your inheritance taxes.
With a credit shelter trust, each spouse can use their full estate tax
exemption, which could effectively double the exemption.
For example, consider a couple with $3,000,000 in total assets who wants to
leave their property to each other if one should pass away. Upon the death of
the first spouse, all property left to the surviving spouse passes tax-free.
However, this leaves the surviving spouse's estate at $3,000,000. When the
second spouse passes away, tax would have to be paid on the amount over the
exemption ($1,000,000 taxed at a maximum marginal rate of 35% in 2007).
Qualified Terminable Interest Property (QTIP) Trust
A type of trust that enables the grantor to provide for a surviving spouse
and also to maintain control of how the trust's assets are distributed once the
surviving spouse has also died. Income, and sometimes principal, generated from
the trust is given to the surviving spouse to ensure that he or she is taken
care of for the rest of his or her life.
How a domestic self-settled spendthrift trust works
With a spendthrift trust, the trustee is given discretion to make or not
make distributions to beneficiaries. Because distributions are discretionary,
beneficiaries are prevented from voluntarily or involuntarily transferring
current or future rights in the trust. In other words, beneficiaries can't give
away trust income or principal in advance of receiving it. One effect of such
alienation language in a trust is that creditors of a trust beneficiary cannot
claim that trust assets are assets of the beneficiary. Therefore, creditors
cannot stake a claim against trust assets, but can only collect money that is
actually distributed to the beneficiary.
How a dynasty trust works
In today's tax system, estate and gift taxes are levied every time assets
change hands from one generation to the next. These dynasty trusts avoided
those taxes by creating a second estate that could outlive most of the family
members, and continue providing for future generations.
Dynasty trusts are long-term trusts created specifically for descendants of
all generations. Dynasty trusts can survive 21 years beyond the death of the
last beneficiary alive when the trust was written.
If you were setting one up today, and you had a 2 year-old grandchild, your
dynasty trust could last well over 100 years. Long after you're gone, a dynasty
trust can distribute income and principal exactly the way you would have
How a Donor Advised Fund (DAF) Works
A private fund administered by a third party and created for the purpose of
managing charitable donations on behalf of an organization, family, or
Donor advised funds offer the donor ease of administration, while still
allowing him or her to maintain significant control over the placement and
distribution of charitable gifts.
How a Private Family Foundation Works
A Private Family Foundation (PFF) is a separate entity, privately funded by
you. It is created with the specific purpose of contributing to various
charitable causes. The Foundation is managed by a trustee or executive director
that oversees the Foundation's investments and distributes the Foundation's
You can even appoint yourself as the trustee of your own Foundation. This
way, you maintain control over the assets contained in the Foundation. Instead
of making a one-time gift to a public charity (and losing control of that
gift), you can monitor your favorite charities. If one non-profit changes its
focus, or if a more meaningful cause comes along, you can reallocate your