Primary Uses of Trusts
Trusts are deployed to achieve specific legal, tax, and administrative objectives:
- Probate Avoidance
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Bypassing the court system for real estate, closely held businesses, and taxable brokerage accounts.
- Control Over Distributions
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Conditioning distributions on age, educational milestones, or behavioral parameters.
- Tax Mitigation
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Leveraging irrevocable trusts to remove future appreciation from the taxable estate, utilizing the lifetime gift and GST exemptions.
- Asset Protection
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Shielding inheritance from a beneficiary’s creditors, divorcing spouses, or bankruptcy proceedings.
- Charitable Planning
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Splitting beneficial interest between charitable and non-charitable beneficiaries to secure income tax deductions and defer capital gains.
Match the structure to the objective instead of collecting trusts for their own sake. The dominant goal points to the vehicle:
| Primary goal | Structure |
| Avoid probate, keep control | Revocable living trust (section “Revocable Living Trust”) |
| Control when heirs receive assets | Revocable trust with staged or HEMS distributions; for minors, a testamentary or custodial route |
| Remove appreciation from a taxable estate | GRAT, sale to an IDGT, or QPRT for a residence (section “Intentionally Defective Grantor Trusts (IDGTs)”, section “Grantor Retained Annuity Trusts (GRATs)”, section “Qualified Personal Residence Trust (QPRT)”) |
| Use the exemption but keep indirect access | SLAT (section “Spousal Lifetime Access Trusts (SLATs)”) |
| Skip a generation / build a dynasty | GST-exempt dynasty trust (section “Dynasty Trusts”) |
| Provide insurance liquidity outside the estate | ILIT (section “Irrevocable Life Insurance Trusts (ILITs)”) |
| Protect a beneficiary from creditors or themselves | Spendthrift trust; DAPT for self-settled protection (section “Domestic Asset Protection Trusts (DAPTs)”) |
| Provide for a disabled heir without losing benefits | Special needs trust (section “Special Needs Trusts”) |
| Charitable intent plus an income stream or deduction | CRT or charitable lead trust (section “Charitable Remainder Trusts”, section “Charitable Lead Trusts (CLTs)”) |
Asset Funding Guidelines To make a trust effective, you must transfer ownership of your assets to the trust (a process called funding).
- Assets to Fund Into a Trust: Real estate (via a recorded deed), taxable brokerage accounts, closely held business shares, and valuable tangible personal property (via assignment of interest).
- Assets to Exclude From a Trust: Do not transfer ownership of retirement accounts (e.g., Traditional/Roth IRAs, 401(k)s) or Health Savings Accounts (HSAs) to a trust during your lifetime; doing so triggers immediate liquidation and ordinary income taxation. Instead, name the trust as a primary or contingent beneficiary. Similarly, do not place everyday vehicles or active checking accounts used for monthly expenses in the trust.