Trusts

You can maintain control through a number of approaches.

• Careful trustee selection: Choose trustees with investment expertise aligned with your philosophy or who will honor your stated preferences.
• Detailed trust language: Include specific investment directives, policies, and restrictions in the trust document.
• Investment policy statement: Create a separate document outlining investment objectives, risk tolerance, asset allocation, and performance expectations.
• Reserved powers: In some trusts, you can retain investment authority while delegating other trustee duties.
• Trustee removal/replacement provisions: Enable beneficiaries or trust protectors to replace trustees who deviate from investment guidelines.
• Corporate trustee: Consider appointing Truist as a corporate fiduciary to fairly and objectively execute the details of your estate plan.

Different states have varying laws regarding trustee investment duties and the ability to direct investments, so jurisdiction selection can be important.

Trust modification options depend primarily on trust type and applicable state law.

Revocable Living Trust modification:

• Can be freely amended or revoked by the grantor
• Becomes irrevocable upon the grantor's death or incapacity

Irrevocable Trust modification:

• Often requires the consent of all beneficiaries
• May involve court intervention

Modern trust law in many states now provides additional flexibility, including:

• Decanting: Trustee transfers assets from existing trust to new trust with modified terms
• Nonjudicial Settlement Agreements: All interested parties agree to modify certain terms without court approval
• Virtual Representation: Allows parties to represent interests of minor/unborn beneficiaries
• Trust Division/Combination: Splitting or combining trusts to better serve beneficiaries

Some jurisdictions have enacted the Uniform Trust Code or similar laws providing specific statutory pathways for modification.

Modification is generally easier when:

• All beneficiaries consent
• Changes align with the trust's original purpose
• Tax consequences are properly considered
• State law is favorable to modifications

For any trust modification, consult with legal counsel to navigate complex requirements and avoid unintended consequences.

Trusts offer various financial and philanthropic advantages.

• Tax advantages: Charitable trusts offer income, gift, and estate tax savings. Lifetime gifts to qualified charities provide current income tax deductions while reducing your taxable estate.
• Support for causes: Charitable trusts help further the work of causes you believe in while providing tax benefits.
• Income retention: With a Charitable Remainder Trust (CRT), you can continue receiving income from assets you've donated to charity for life or for a fixed period of years.
• Capital gains tax avoidance: A CRT funded with appreciated low-basis property allows the trust beneficiary to benefit from the trust's sale of the property without paying capital gains tax.
• Family benefits: By replacing the value of the property given to charity with insurance payable to a family member, you can make a tax-advantaged gift to charity without shortchanging your family.
• Structured giving: A Charitable Lead Trust (CLT) allows you to make regular gifts to a favorite charity while eventually passing assets to family members, potentially with tax benefits.

Charitable trusts can be especially beneficial for donors with appreciated assets, high income in certain years, or the desire to support charities while addressing family needs.

Trusts offer various tax-reduction strategies.

• Credit shelter trust (bypass trust): Allows both spouses to utilize their estate tax exemptions, keeping appreciation out of the surviving spouse's estate.
• Qualified Terminable Interest Property (QTIP) trust: Allows you to provide income to your surviving spouse while controlling who receives the assets after your spouse's death, while still qualifying for the marital deduction.
• Grantor Retained Annuity Trust (GRAT): Transfers appreciation above the IRS hurdle rate with minimal gift tax impact.
• Charitable Remainder Trust (CRT): Provides income to you or other beneficiaries for life or a defined number of years, with the remainder going to charity. This can provide income, gift, and estate tax benefits.
• Charitable Lead Trust (CLT): Pays income to charity for a set period, with the remainder passing to family members—potentially with reduced gift or estate taxes.
• Irrevocable Life Insurance Trust (ILIT): Keeps life insurance proceeds outside your taxable estate.
• Qualified Personal Residence Trust (QPRT): Transfers a home to beneficiaries at reduced gift tax value while retaining the right to live there.
• Dynasty Trust: Leverages generation-skipping tax exemption to create multi-generational wealth transfer with minimal transfer taxation.
• Intentionally Defective Grantor Trust (IDGT): Removes assets from the estate while grantor continues paying income taxes, allowing tax-free growth.
• Spousal Lifetime Access Trust (SLAT): Removes assets from the estate while indirect access remains through the spouse as beneficiary.

These trusts must be carefully structured to comply with complex tax rules and should be implemented with qualified advisors.

Trusts can provide significant creditor protection through various mechanisms.

• Self-settled asset protection trusts: In certain states and foreign jurisdictions, you can create trusts that potentially protect assets from your own creditors while retaining some benefits. Asset protection trusts should be created proactively before creditor issues arise.
• Third-party spendthrift trusts: Trusts created for beneficiaries can include spendthrift provisions preventing creditors from reaching trust assets before distribution.
• Discretionary trusts: When trustees have discretion over distributions, creditors generally cannot force distributions.
• Support trusts: Trusts limited to providing for beneficiaries' support needs may have protection from creditors.
• Specialty trusts: Particular types of trusts protect specific assets:
  • Irrevocable Life Insurance Trusts (ILITs) protect life insurance
  • Retirement trusts can extend creditor protection for inherited retirement accounts
  • Business trusts can shield business assets

The level of protection varies by:

• State law—some states provide stronger protection than others
• Trust structure and provisions
• Timing of trust creation relative to creditor claims
• Whether fraudulent transfer laws apply