When people think of estate planning, they often default to standard options like living trusts or wills. However, the world of trusts is broad, offering unusal trusts for various situations.
Today, let’s venture into lesser-known territories and explore unconventional trusts like rabbi trusts, funeral trusts, and more. You’ll also learn why these specialized unusual trusts may offer the perfect solution for your unique needs.
Rabbi Trusts: Secure Future Benefits for Employees
Contrary to what the name may suggest, rabbi trusts have no religious significance. They are a favorite in corporate America, providing security for deferred compensation plans for employees.
When a company faces bankruptcy, these trusts protect the employee’s future benefits from corporate creditors. While they don’t offer ironclad protection against all claims, rabbi trusts do offer peace of mind to employees, bolstering their loyalty and commitment to the company.
Funeral Trusts: Alleviating Burdens at a Sensitive Time
Confronting one’s own mortality isn’t pleasant but being prepared can be a final act of kindness to your family. A funeral trust is a specialized irrevocable trust designed to cover funeral and burial expenses. By setting one up, you remove a financial and emotional burden from your loved ones during a challenging time.
Blind Trusts: Separating Power From Financial Gain
Especially useful for politicians or high-ranking corporate officers, blind trusts create a wall between you and your investments. In this setup, a trustee manages the assets without your knowledge or input. This arrangement helps to avoid conflicts of interest and ethical dilemmas that can arise when personal wealth intersects with public responsibility.
Secret Trusts: The Ultimate in Discretion
For those who wish to make confidential bequests, the secret trust is another one of these unusual trusts that can offer an answer. It is not disclosed in your will but is instead arranged privately with your trustee. The downside? If your trustee decides not to honor the agreement, it can be challenging to enforce the terms of the trust.
Qualified Domestic Trusts: Helping Non-Citizen Spouses
When your spouse isn’t a U.S. citizen, you can’t take advantage of the marital deduction for estate taxes in the same way as other couples. Enter the qualified domestic trust (QDOT). This trust enables you to pass assets to your non-citizen spouse, deferring estate taxes until the assets are distributed.
To provide clarity regarding the federal estate tax, everyone does not have to be concerned about it. There is a credit or exclusion that is a set dollar amount that you can transfer before the tax is applied on the portion that exceeds that amount.
The exclusion at the time of this writing in 2023 is $12.92 million, and it will be adjusted upward next year to account for inflation, and the top rate is 40 percent. This is the highest federal estate tax exclusion ever, but it isn’t going to last for long.
A key provision in the Tax Cuts and Jobs Act of 2017 is going to expire or sunset at the end of 2025. On New Year’s Day, 2026, the exclusion will revert back to the 2017 level of $5.49 million indexed for inflation.
Totten Trusts: Avoiding Probate Made Easy
Sometimes called a “Payable-On-Death (POD) account,” a Totten trust is essentially a bank account with a named beneficiary. It offers an uncomplicated way to pass on cash assets without going through probate. You maintain full control during your lifetime, and the beneficiary gains access to the funds upon your death.
Testamentary Trusts: Wills With a Twist
While most trusts are standalone documents, a testamentary trust forms part of your will and takes effect after your death. It’s an effective way to stagger inheritances for minor children or others who may not be prepared to manage a large sum.
Grantor Retained Annuity Trusts: Shifting Wealth, Saving Taxes
Another effective estate planning tool is the grantor retained annuity trust (GRAT). Here, you transfer assets into a trust but retain the right to receive annuity payments for a set period. If you survive the term, the remaining assets go to your beneficiaries, often with minimal or zero estate taxes consequences.
Why These Specialized Trusts Matter
So why bother with these seemingly obscure trust types? The benefits are more focused:
1.) Rabbi Trust: Assures employees about their future financial benefits.
2.) Funeral Trust: Pre-plans end-of-life expenses, reducing stress for family members.
3.) Blind Trust: Shields public figures from conflicts of interest.
4.) Secret Trust: Allows utmost privacy in estate planning.
5.) Qualified Domestic Trust: Extends estate tax benefits to non-citizen spouses.
6.) Totten Trust: Simplifies small asset transfers.
7.) Testamentary Trust: Provides more control over will-based asset distribution.
8.) Grantor Retained Annuity Trust: Allows for tax-efficient asset transfer.
Wrap-Up: The Value of Niche Trusts in Your Estate Plan
Although these unique trusts might not be the first tools that come to mind for estate planning, they offer invaluable solutions for specific circumstances. Whether you need to ensure employee loyalty, plan discretely for the future, or navigate international marital laws, there’s likely a specialized trust that can meet your needs.
Take Action to Secure Your Legacy!
This post demonstrates the reason why professional guidance is key when you are planning your estate. As a layperson, you are simply not going to be aware of all of the different possible ways that you could facilitate asset transfers to your heirs.
Plus, there are other nuances that you may overlook if you do not have any experience in this field. When we enter the picture, we provide the necessary guidance. After we understand your situation and your objectives, we will offer solutions that are ideal in light of your circumstances.
At the end of the process, you will go forward with a tailor-made plan that will cover all of your bases. And as the years pass, we will be available to update your plan as life changes unfold.
You can give us a call at 843-815-8580 to schedule a consultation at our Bluffton, South Carolina estate planning office, and if you would rather send us a message, simply fill out our contact form and we will get back in touch with you as quickly as we can.
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