Types of trusts – May. 29, 2015 will i get housing benefit

For a trust in which you want to put the majority of your assets — known as a revocable living trust — you also have to have a pour-over will to cover any of your holdings that might be outside of your trust if you die unexpectedly. A pour-over will essentially directs that any assets outside of the trust at the time of your death be put into it so they can go to the heirs you choose.

With a credit-shelter trust (also called a bypass or family trust), you write a will bequeathing an amount to the trust up to the estate-tax exemption. Then you pass the rest of your estate to your spouse tax-free. You also specify how you want the trust to be used — for example, you may stipulate that income from the trust after you die goes to your spouse and that when he or she dies, the principal will be distributed tax-free among your children.Will i get housing benefit

Since your spouse is also entitled to an estate-tax exemption, the two of you can effectively double (or more than double) that portion of your kids’ inheritance that is shielded from estate taxes by using this strategy.

And there’s an added bonus: once money is placed in a bypass trust it is forever free of estate tax, even if it grows. So if your surviving spouse invests it wisely, he or she may add to your children’s inheritance.

Of course, you can pass an amount equal to the estate-tax exemption directly to your kids when you die, but the reason for a bypass trust is to protect your spouse financially in the event he or she has need for income from the trust or in the event you think your children will squander their inheritance before the surviving parent dies.

A generation-skipping trust (also called a dynasty trust) allows you to transfer a substantial amount of money tax-free to beneficiaries who are at least two generations your junior — typically your grandchildren.Will i get housing benefit

Beware, however. If you leave more than the exemption amount, the bequest will be subject to a generation-skipping transfer tax. This tax is separate from estate taxes, and is designed to stop wealthy seniors from funneling all their money to their grandchildren.

A QPRT lets you give your home as a gift — most commonly to your children — while you keep control of it for a period that you stipulate, say 10 years. You may continue to live in the home and maintain full control of it during that time.

In valuing the gift, the IRS assumes your home is worth less than its present-day value since your kids won’t take possession of it for several years. (the longer the term of the trust, the less the value of the gift.)

Here’s the catch: if you don’t outlive the trust, the full market value of your house at the time of your death will be counted in your estate.Will i get housing benefit in order for the trust to be valid, you must outlive it, and then either move out of your home or pay your children fair market rent to continue living there, janko says. While that may not seem ideal, the upside is that the rent you pay will reduce your estate further, levine notes.

An irrevocable life insurance trust (ILIT) can remove your life insurance from your taxable estate, help pay estate costs, and provide your heirs with cash for a variety of purposes. To remove the policy from your estate, you surrender ownership rights, which means you may no longer borrow against it or change beneficiaries. In return, the proceeds from the policy may be used to pay any estate costs after you die and provide your beneficiaries with tax-free income.

That can be useful in cases where you leave heirs an illiquid asset such as a business.Will i get housing benefit the business might take a while to sell, and in the meantime your heirs will have to pay operating expenses. If they don’t have cash on hand, they might have to have a fire sale just to meet the bills. But proceeds from an ILIT can help tide them over.

If you’re part of a family where there have been divorces, remarriages and stepchildren, you may want to direct your assets to particular relatives through a qualified terminable interest property (QTIP) trust.

Your surviving spouse will receive income from the trust, and the beneficiaries you specify will get the principal or remainder after your spouse dies. People typically use QTIP trusts to ensure that a fair portion of their wealth ultimately passes to their own children and not someone else’s.

Money in a QTIP trust, unlike that in a bypass trust, is treated as part of the surviving spouse’s estate and may be subject to estate tax.Will i get housing benefit that’s why you should create a bypass trust first, which shelters assets up to the estate-tax exemption, and then if you have assets left over you can put it in a QTIP, levine says.

For a trust in which you want to put the majority of your assets — known as a revocable living trust — you also have to have a pour-over will to cover any of your holdings that might be outside of your trust if you die unexpectedly. A pour-over will essentially directs that any assets outside of the trust at the time of your death be put into it so they can go to the heirs you choose.

With a credit-shelter trust (also called a bypass or family trust), you write a will bequeathing an amount to the trust up to the estate-tax exemption. Then you pass the rest of your estate to your spouse tax-free. You also specify how you want the trust to be used — for example, you may stipulate that income from the trust after you die goes to your spouse and that when he or she dies, the principal will be distributed tax-free among your children.Will i get housing benefit

Since your spouse is also entitled to an estate-tax exemption, the two of you can effectively double (or more than double) that portion of your kids’ inheritance that is shielded from estate taxes by using this strategy.

And there’s an added bonus: once money is placed in a bypass trust it is forever free of estate tax, even if it grows. So if your surviving spouse invests it wisely, he or she may add to your children’s inheritance.

Of course, you can pass an amount equal to the estate-tax exemption directly to your kids when you die, but the reason for a bypass trust is to protect your spouse financially in the event he or she has need for income from the trust or in the event you think your children will squander their inheritance before the surviving parent dies.

A generation-skipping trust (also called a dynasty trust) allows you to transfer a substantial amount of money tax-free to beneficiaries who are at least two generations your junior — typically your grandchildren.Will i get housing benefit

Beware, however. If you leave more than the exemption amount, the bequest will be subject to a generation-skipping transfer tax. This tax is separate from estate taxes, and is designed to stop wealthy seniors from funneling all their money to their grandchildren.

A QPRT lets you give your home as a gift — most commonly to your children — while you keep control of it for a period that you stipulate, say 10 years. You may continue to live in the home and maintain full control of it during that time.

In valuing the gift, the IRS assumes your home is worth less than its present-day value since your kids won’t take possession of it for several years. (the longer the term of the trust, the less the value of the gift.)

Here’s the catch: if you don’t outlive the trust, the full market value of your house at the time of your death will be counted in your estate.Will i get housing benefit in order for the trust to be valid, you must outlive it, and then either move out of your home or pay your children fair market rent to continue living there, janko says. While that may not seem ideal, the upside is that the rent you pay will reduce your estate further, levine notes.

An irrevocable life insurance trust (ILIT) can remove your life insurance from your taxable estate, help pay estate costs, and provide your heirs with cash for a variety of purposes. To remove the policy from your estate, you surrender ownership rights, which means you may no longer borrow against it or change beneficiaries. In return, the proceeds from the policy may be used to pay any estate costs after you die and provide your beneficiaries with tax-free income.

That can be useful in cases where you leave heirs an illiquid asset such as a business.Will i get housing benefit the business might take a while to sell, and in the meantime your heirs will have to pay operating expenses. If they don’t have cash on hand, they might have to have a fire sale just to meet the bills. But proceeds from an ILIT can help tide them over.

If you’re part of a family where there have been divorces, remarriages and stepchildren, you may want to direct your assets to particular relatives through a qualified terminable interest property (QTIP) trust.

Your surviving spouse will receive income from the trust, and the beneficiaries you specify will get the principal or remainder after your spouse dies. People typically use QTIP trusts to ensure that a fair portion of their wealth ultimately passes to their own children and not someone else’s.

Money in a QTIP trust, unlike that in a bypass trust, is treated as part of the surviving spouse’s estate and may be subject to estate tax.Will i get housing benefit that’s why you should create a bypass trust first, which shelters assets up to the estate-tax exemption, and then if you have assets left over you can put it in a QTIP, levine says.