It’s easy to think of Oregon estate planning trusts as one type of document. In fact, there are lots of different types of trust. Each has a specific use that can be beneficial to a set of circumstances.
Talking about trusts is more like talking about a tool box: It’s a broad term that encompasses many different types of legal tools. Each plays a different function and can aid your estate, decrease tax liability, and provide for your loved ones in different ways.
Oregon trusts hold assets for the benefit of designated persons or organizations
At its most simple, Oregon estate planning trusts are legal constructs that can own and distribute assets. A trustor establishes the trust. A trustee manages the assets in the trust according to the instructions or specifications of the trustor as articulated in the trust document. Depending on the type of trust, the trustor and the trustee can also be the same person.
The trust holds assets, such as real estate, financial assets, life insurance policies, business interests, collectibles and other property. It also specifies beneficiaries, such as a spouse, children, friends, relatives, or organizations, such as a charity or non-profit you want the trust to provide for.
The instructions governing your trust also govern how assets and generated interest and income are distributed, protected, restricted, or passed on. As another plus, assets held inside the trust don’t have to pass through probate like a will does.
A basic difference: Revocable and irrevocable trusts
At its most basic level, trusts can be split into two main types: revocable and irrevocable trusts:
- Revocable Trusts can be altered or ended while the trustor is alive
- Irrevocable Trusts cannot be revoked or changed
Revocable trusts can be useful precisely because their flexibility allows adjustments to fit life changes. Or, if the trust no longer suits the needs of the trustor and/or trustees, the trust can be dissolved.
While that flexibility is useful, a revocable trust isn’t right for every situation. An irrevocable trust can preserve assets in a specified way, removing assets from your estate—and potential tax liability.
Oregon Estate Planning Trusts for tax planning purposes
Some Oregon estate planning trusts are especially designed around tax planning, such as:
- Irrevocable Life Insurance Trusts (ILIT): The value of a life insurance policy owned by the decedent on his or her own life is includable in the determination of the value of the estate. An ILIT can use life insurance with planning adaptability and tax advantages by excluding life insurance value from the calculation of the value of the estate.
- Testamentary Trusts: Your will specifies the terms of this irrevocable trust. After your death, and once probate is completed, the terms of the testamentary trust take effect.
- Totten Trusts: Essentially a payable-on-death (POD) account, a Totten Trust holds financial assets in investment or bank accounts. After your death, the assets pay out to the beneficiary or beneficiaries you’ve named on the account.
These are only a few examples of some Oregon estate planning trusts focused on tax planning. Here are a few other types of Oregon trust you may want to discuss with your estate planning attorney:
Charitable remainder trusts
A Charitable Remainder Trust (CRT) is a gift of cash or other property to an irrevocable trust. The trustor receives an income stream from the trust for a term of years or for life and the named charity receives the remaining trust assets at the end of the trust term. The trustor receives an immediate income tax charitable deduction when the CRT is funded based on the present value of the assets that will eventually go to the named charity.
Marital deduction trusts
Spouses can use a marital deduction trust to provide for one another. Different types exist, such as:
- Marital Trusts: One spouse sets up this trust for, upon their death, the benefit of the other spouse. Assets and generated income pass to the surviving spouse. A tax consideration: While the spouse would not owe estate taxes, once they pass away, their heirs will.
- Bypass Trusts: Also known as a credit shelter trust, an irrevocable bypass trust can decrease the estate tax liability their heirs may be subject to. Upon the death of a spouse, the trust automatically transfers assets to ownership by the trust and for the benefit of the surviving spouse. Since the assets exist in the trust, not the spouse’s estate, they can later pass to heirs without estate tax liability.
These are the two types of trusts often used in taxable estate planning in an AB scheme.
Generation skipping trusts
Sometimes you may want to provide benefits to a later generation, such as not to your children, but to your grandchildren. A generation skipping trust holds assets and passes them to your grandchildren’s benefit. This can help your children avoid estate tax liability, but you may also still choose to allow your children to receive income created by the trust’s assets.
Special needs trusts
When you have a disabled dependent in the family, a special needs trust can provide them additional income and benefit, without making them ineligible for state and federal government benefits. Funds held in a special needs trust can be used to cover expenses such as care costs or even day-to-day living costs. If this trust is set up by a family member, such as a parent or grandparent of the disabled person, the state providing benefits to the disabled person would not be able to seek reimbursement from the trust upon the death of the disabled person.
Different Oregon estate planning trusts can fit your situation too
Even this list is only an example of the many different types of Oregon estate planning trusts that you can use to benefit your estate and heirs. Plus, each type of trust has to follow its own set of specific requirements to be valid under Oregon law.
What Oregon trust is right for you, and how can it best benefit you, your taxes, and your beneficiaries?