Mellody's Mail: The Lowdown on Trusts

Q U E S T I O N:: What is a trust and when does a couple or individual need one?

A N S W E R: Although there are several different types of trusts, a trust is basically a legal structure which allows you to pass assets onto your heirs.

Typically, a trust has three primary participants: a grantor, a trustee and a beneficiary. The grantor is the creator of the trust. The trustee manages the trust and carries out the wishes of the grantor. The beneficiary is the person or people who benefit from the trust.

Generally speaking, there are two ways to classify trusts. They are either "living" meaning they are created while the grantor is alive, or they are "testamentary," meaning they are created upon the grantor's death. In addition, the status of a trust is either irrevocable — once established, it cannot be changed — or revocable, which means it can be revoked or changed at any time.

While a trust limits your control of the assets within it, there are several benefits to having one. First, a trust enables easy transfer of assets from you to your heirs. Second, it can be a sound vehicle to reduce estate taxes. Third, unlike wills whose contents can be made public, a trust is a private and secure means to transfer wealth.

Whether you and your husband could benefit from a trust depends on several factors, including your age, assets and number of dependents. Under the current federal laws, the first $1 million of your estate is exempt from estate taxes. Any assets beyond $1 million could be subject to estate taxes of over 50 percent.

Over the next several years, this exemption amount will rise to $3.5 million in 2009, and estate taxes are scheduled to be eliminated completely in 2010. Therefore, if your estate is currently valued at more than $1 million, you may want to consider placing some of your assets in a trust.

While there are many different types of trusts, they are not necessarily for everyone. That said, careful and thoughtful estate planning is a must for all.