Trusts That Can Help Your Financial Planning

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Trusts That Can Help Your Financial Planning

7 Types of Trusts That Can Help Your Financial Planning

When making long-term financial plans and estate plans, you might run into special concerns: Will the right people inherit your money? Are you sure your heirs are able to manage their inheritance responsibly? Are there any strategies to help you transfer your money to the next generation or to charity or tax efficiently?

For all those various types of concerns, you might want to consider setting up a trust. These are legal arrangements that allow you to better determine the distribution of your property during or after your lifetime.

There are two main types of trusts: revocable and irrevocable. An irrevocable trust cannot be changed and assets cannot be removed once it is created. A revocable trust, on the other hand, allows you to change the terms or revoke the assets during your lifetime. In both cases, trusts offer various types of financial-planning benefits, such as tax efficiently transferring assets to the next generation or ensuring your chosen beneficiaries receive your assets.

Every type of trust has its own rules that you will want to discuss with your financial advisor before setting one up. Here are seven types of trusts that may be worth considering:


Living trust

This is a revocable trust in which you can put assets, including real estate and investment accounts, during your lifetime and designate who they should pass to upon your death. It’s similar to a will except that it can prevent your estate from going through a time-consuming probate process in which a state court oversees the estate division process. 


Qualified terminable interest property trust (QTIP)

If you’re divorced, remarried or have stepchildren, you may be concerned about your chosen heirs actually receiving your money after you die. A QTIP first benefits your surviving spouse and then passes any remainder or principal to the heirs of your choice.


Bypass trust (aka credit shelter trust)

You write a will that leaves a specific amount to this irrevocable trust, up to—but not exceeding—the annual estate-tax exemption limit. The rest of your estate can then pass to your spouse tax-free.


Charitable trust

Two types of irrevocable trusts can help you give money to charity while also serving your personal financial goals: charitable remainder and charitable lead trusts. A remainder trust provides an income stream today and an upfront tax deduction based on the expected donation to charity of whatever is remaining in the trust. A lead trust—the opposite of a remainder trust—provides donations to charity over a set period of time with the remaining assets passing to family.


Irrevocable life insurance trust

This allows you to separate a life insurance policy from your estate, potentially making the policy’s death benefit not subject to estate taxes. You can transfer ownership of an existing policy or have the trust purchase the policy directly.


Special needs trust

If you have a child or another dependent who doesn’t have the mental ability to manage their own finances, this trust can be established for their benefit. The trust can prevent the beneficiary from losing any government disability benefits while receiving financial assistance from you. Moreover, you designate a trustee (which could be yourself) who has discretion over the trust’s assets and how they are distributed.  


Spendthrift trust

If you’re concerned that an heir might be irresponsible with their inheritance—such as abusing drugs or spending the money too quickly—you can create a trust that sets conditions for how the money is distributed. For example, you can require the beneficiary to pass an annual drug test or hold a full-time job in order to receive their trust benefit.

Trusts can be helpful to your financial planning, but it’s important to work with a knowledgeable and experienced advisor who can answer your questions and help you determine whether one is right for you.

BOK Financial Advisors specializes in trust planning and management and can guide you through the process.

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BOK Financial Corporation (BOKF) offers wealth management and trust services through various affiliate companies and non-bank subsidiaries including advisory services offered by BOKF, NA and its subsidiaries BOK Financial Asset Management, Inc. and Cavanal Hill Investment Management, Inc. each an SEC registered investment adviser. BOKF offers additional investment services and products through its subsidiary BOK Financial Securities, Inc., a broker/dealer, member FINRA/SIPC, and an SEC registered investment adviser and BOK Financial Private Wealth, Inc., also an SEC registered investment adviser.

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