Tightening Your Budget

If you are dealing with substantial wealthy, you will most likely want to hire a personal wealth management professional. When meeting with your personal wealth management consultant, they will usually offer up different ways for you to manage your money to save on taxes and make your money grow. Your private wealth manager might suggest different types of trusts you can create to help your money work better for you. You should know the difference between certain types of trusts to help you make an informed decision when it comes to how to allocate your money.

Credit Shelter Trust

Credit shelter trusts are a type of trust that provide an easy way for you to take advantage of the government's state and federal tax exemptions. Although usually the provenance of the quite wealthy, there are still plenty of reasons for people with more modest assets to take advantage of a credit shelter trust. The general gist of a credit shelter trust is that for your first $5.43 million in assets, you will pay no tax on assets. If you have a spouse, your estate will not be taxed as long as the assets are less than $10.86 million. When a spouse dies, no tax will be paid on any of the estate less than 10.86 million. However, any money over this amount will be subject to tax.

Generation Skipping Trust

A generation skipping trust operates just like it sounds: the assets of the deceased are, in fact, not passed down to the deceased's children, but rather, it skips a generation and the deceased's grandchildren will inherit their assets.

This is used not just for personal reasons, but substantive tax reasons, as well. If the assets were passed down to the deceased's children and then eventually the grandchildren, then the assets would ultimately be taxed twice. This is legal, but putting the assets in the hands of the grandchildren will require a considerable degree of responsibility involved, and if the children are under 18, they will either not be granted these assets until they come of age or will have their parents put in charge of the assets.  

Qualified Personal Residence Trust

A qualified personal residence trust is where a person's residence (and in some cases, the property on which it resides) are gifted at a very low tax rate to the inheritor. The grantor will agree to live in the house for a number of years, rent free, and then the house is then given to the inheritor. The inheritor will not be taxed for receiving this gift, but will not granted the privileges that correspond to house ownership during this time. This means that the owners of the house will not receive the benefits of the appreciation of value of the home during this time, essentially.

Charitable Trust

Another trust that operates exactly as it sounds, a charitable trust is a trust that is written in correspondence with charitable reasons and is quite a bit more specific in its definition than a "charitable" organization. This means that a granter's assets, or portions of his or her assets, will be given to an institution or organization for charitable or philanthropic reasons. A granter, as well as his or her family will receive ample tax exemptions for this very reason. The most common type of charitable trust is a lead charitable trust, where the majority is paid to organization up front, and then a certain amount will be slowly given to heirs or inheritors of that organization.

Living Trust

A living trust is a trust where the granter gives control over one's assets, or a portion of one's assets, until the granter's death, or a certain specific time, under which time it is given to another person. This is usually done when the inheritor is not an adult and needs an adult beneficiary to take care of his or her assets.

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