Some of the advice financial advisors give clients concerning setting up trusts may be outdated or overly simplistic, Martin Shenkman, a New Jersey CPA and attorney fears. In an article in Financial Planning, Shenkman offers a guide explaining the distinction between grantor and non-grantor trusts.
1. Grantor trust – the client sets up the trust and pays the tax on the income. Some plans, such as those involving life insurance, might be best held in this type trust. All revocable living trust are considered grantor trusts while the grantor is alive.
2. Non-grantor trust – the trust, not the client, pays income tax on the income. This type of trust might be recommended for those who want to maximize charitable contributions deductions.
“Advisors need to understand the nature of the trust’s structure,” Shenkman explains, “as it affects not only income tax planning but also asset location decisions.” While advisors don’t need to be experts, he says, they need to have some understanding of the different nuances. When the client’s attorney recommends a type of trust, the planner must truly understand the nature of that trust, the author comments.
There are more variations of trusts than ever before, which means clients and their families can benefit from more strategies, Shenkman says, and planners should remain proactively involved in the planning.
“Recognize the value in a strong partnership between financial planner and estate planning attorney,” urges Mike Piershale in WealthManagement.com. “It’s vital that clients have not only a strong estate plan, but have their finances secured as well.”
At Rebecca W. Geyer & Associates we fully agree. As a full-service estate planning and elder law firm serving the people of central Indiana, we work as a team with our clients’ tax, insurance, and financial planning advisors to best meet our clients’ estate planning and business goals.
Whether building a room addition or an estate plan, one important part of any strategy involves choosing the right tool. The choice of a grantor or non-grantor trust – and the choice to work as a team with our clients’ other advisors – can make a very big difference in terms of achieving the desired estate and tax planning outcomes!
– by Ronnie of the Rebecca W. Geyer blog team
