The Right Trust for You
Trust arrangements are as varied as the people who use them. Northwestern Mutual Wealth Management Company's® trust services can help you and your attorney choose a trust arrangement that best applies to your unique situation.
A revocable trust allows for the professional management of your assets for you and your family during your lifetime and following your death. This type of trust keeps your assets out of probate, ensures that your beneficiaries are provided for in a timely manner and keeps the assets of your estate from becoming public record.
A revocable trust offers flexibility, provides for special circumstances and benefits individuals.
Characteristics include:
- Established while you are living and may be changed throughout your lifetime.
- Assets are professionally managed.
- Orderly disposition of assets to your children, assurance of privacy and avoidance of expense related to probate court.
- Married individuals can strategically use their unified credits with a revocable trust to save estate taxes.
An irrevocable life insurance trust can be used to achieve a wide range of financial goals, such as decreasing the value of your taxable estate, providing liquidity for your estate, growing assets estate-tax free and providing a lifetime stream of income for a spouse. Irrevocable Life Insurance Trusts hold life insurance on the life of the grantor.
Characteristics include:
- Established while you are living and may not be changed by you or anyone else.
- Ability to transfer assets out of your taxable estate and into the trust, thereby reducing the assets subject to estate taxes.
- Assets held by the trust will be professionally distributed according to your wishes upon your death and will avoid estate taxes as well as the probate process.
- The proceeds of the insurance policy are not included in your estate, and therefore not subject to estate and income taxes.
- Proceeds of the policy may be excluded from your spouse's estate as well.
- The trustee can use the proceeds to provide liquidity for your estate, make special payments to your spouse or provide a lifetime stream of income to your spouse.
A charitable remainder trust is a split interest trust, benefiting two interested parties. These types of arrangements provide income to the donor or other specified individuals as established in the governing trust document and leave the remaining trust assets to charitable organizations.
Characteristics include:
- Use of the tax status of charitable organizations provides financial benefits to two different groups of beneficiaries.
- For individuals with highly appreciated assets with charitable giving intentions, can help generate retirement income.
- Defer capital gains tax on highly appreciated assets, receive an income tax deduction in the year gifted, and turn assets into an income stream.
- Benefit charitable organizations who receive the trust's remaining assets upon termination of the trust or at donor's death.
An irrevocable trust allows for the professional management of your assets and allows you to make tax-free gifts to the trust, up to certain limits, that can grow free from estate tax for the benefit of your heirs.
Characteristics include:
- Established while you are living and cannot be changed once it is established.
- Use the gift tax annual exclusion to make gifts to the trust to realize estate tax savings.
- Make discretionary distributions from the trust to your children while they are still alive.
- Assets are professionally managed.
- Trustee becomes responsible for paying taxes and handling the related administrative tasks, a benefit for those with a chronic illness or long-term disability.
- Orderly disposition of assets to your children, assurance of privacy and avoidance of expense related to probate court.
A generation skipping tax-exempt trust provides income and professional asset management to several generations of beneficiaries, while minimizing or avoiding Generation Skipping Transfer Tax.
Congress imposed the Generation Skipping Transfer Tax in 1986 to discourage wealthy individuals from gifting or bequeathing assets to grandchildren or great-grandchildren to avoid estate tax. The Generation Skipping Transfer Tax is not triggered if gifts fall within the limits of an exclusion that is indexed for inflation.
Characteristics include:
- Help individuals take advantage of gift exemptions and shelter their gifts in a trust that will protect and grow assets for future generations.
- Irrevocable and intended to provide for the orderly distribution of an estate to the grantor's grandchildren or great grandchildren.
- Keep assets out of the taxable estate.
- Allow for distributions to the children of the grantor to an ascertainable standard.
- Professional asset management as well as orderly and immutable distribution of the trust's assets according to the terms of the trust.
A marital trust takes advantage of the federal marital deduction, which allows both spouses to pass unlimited assets to one another without federal estate tax under current law. A unified credit trust utilizes the applicable estate tax exclusion amount, which allows an individual to pass a specified amount of assets to a beneficiary free of federal estate tax.
Characteristics include:
- Defer estate tax until the death of the second spouse.
- Customize to reflect your particular situation, even providing for beneficiaries in addition to your spouse.
- A properly arranged unified credit trust can shelter assets from estate tax at the surviving spouse's death.
- Professional asset management; leverage the marital deduction and applicable estate tax exclusion.
- Distribute assets according to their wishes and not according to state intestacy law.
- Help individuals provide for spouses and children while reducing estate taxes and utilizing applicable exclusion amounts.
A court-appointed trust is created pursuant to court order to ensure that the terms of a court judgment are carried out for settlements such as wrongful death or personal injury suits.
Characteristics include:
- Trustee is responsible for managing the property in the court-appointed trust for the benefit of individuals or institutions specified in and according to the written terms and conditions of the trust document.
- A court-appointed trust cannot be changed or revoked by any party in the future without court approval.
- Consistent with the terms of the document, the trustee makes all scheduled and discretionary distributions to the trust's beneficiary, pays the beneficiary's bills and handles all related financial affairs.
A special needs trust provides for children, grandchildren, spouse or other loved ones of the grantor with special physical, mental or emotional needs. This type of trust sets aside assets for the benefit of an individual with special needs. It also requires the trustee to manage the assets of the trust according to the terms and conditions of the trust arrangement.
Characteristics include:
- Cannot be changed or revoked by the grantor or another interested party in the future.
- Created for individuals with very specific needs and circumstances.
- Provide for special needs individuals during their lifetime, rather than minimize or defer estate tax for grantors.
- Protect the assets designated for the special needs of the beneficiary.
- The Trustee makes scheduled and discretionary distributions and pays the bills of the beneficiary consistent with the governing document.