As I write this, I am sitting in the Internet lounge on a cruise ship bound for the inside straits in Alaska. While I am very anxious and excited to see all of the bigger-than-life sights in the far north, most of the sights I've seen today (our first full day out) are scores of folks unsteady on their feet -- and some downright ill!

Yes, it's rough sailing today, and seeing so many sick people -- as well as a brief conversation my partner and I had on the way to the airport -- has led me to some rather morbid but serious thoughts regarding the disposal of my assets upon my demise.

No, I'm not quite ready to go yet, and neither is he, but he has two children and while I have none, I do have precious nieces and nephews who will, hopefully, have something to inherit when I'm gone.

Consequently, I've decided that it's time for some very thoughtful planning.

Many people believe that a will is all you need to ensure that your assets are left according to your wishes. And it's true that in your will, you do choose who gets your favorite elephant, doll or Hot Wheels collection, and if you have minor children, a will is the best way to nominate a guardian for them.

But for folks with more than $100,000 in assets, a will alone has some significant limitations. For instance, a will does not preclude your estate from passing through probate -- an often time-consuming and expensive process that can cost as much as 5% to 7% of your assets and quickly decrease the value of your estate.

It also doesn't do a darn thing about reducing your estate taxes. That's where a trust comes into play. A trust is simply an agreement under which money or other assets are held and managed by one person for the benefit of another. Trusts may be established orally, in writing, or by conduct.

There are numerous types of trusts, and the one that works best for you will depend upon your personal circumstances and goals. Because you want this document to be as fine-tuned and customized as possible, I would recommend that you seek the help of a good estate tax planning attorney and accountant.

Today I'll give you an overview of the major categories of trusts.

An irrevocable trust has a couple of advantages:

• Income from the estate may not be taxable to the trustor (also called grantor, donor, or settler, the person who creates the trust and provides the property included in the trust).
   

• Trust assets may not be subject to death taxes in some states

An irrevocable trust can be a fabulous tool for estate planning, but its biggest problem is once it's established, it cannot be changed. So that means if junior gets out of hand and you decide to cut him off from his inheritance, too bad.

For that reason, most people prefer a revocable trust, and it is the one used most frequently. This living, or "inter vivios" trust is created during your lifetime and is not normally subject to probate, although it is generally still included in your taxable estate. It is so favored because it allows you to add or withdraw assets during your lifetime, to change the terms and manner of administration whenever you like, and to retain the right to make it irrevocable

One of the other primary reasons that living trusts are so popular is that there is no public record of the trust, which can be very important to some folks. Additional advantages include:

• Faster distribution of your estate's assets, particularly if you own property in more than one state, as it allows you to avoid opening probate in each state.
   

• In some states, a trust provides limited protection from creditors.
   

• Avoids any contention or confusion about whom you want to act on your behalf after your death or incapacitation.

The downside of a trust is that since you will need professional assistance from an estate-planning attorney and accountant, it will cost you to set it up, some $1,600 to $3,000 for a basic trust. As well, additional fees for transferring your assets into the trust may be required. But if you have a substantial estate, it is well worth the cost.

Here are a few additional types of trusts:
 

• If you have underage children, you may want to consider setting up a minor's trust to distribute assets at designated times.
   

• A qualified personal residence trust can leave your residence to your heirs at a discount.
   

• People with substantial real estate or business assets may be interested in creating a family limited partnership.
   

• Large estates may benefit from a bypass or unified credit trust, which is established through the will of the first spouse to pass away. The surviving spouse controls the asset distributions, and when he dies, the assets are passed on to the trust's heirs, estate tax-free.
   

• If you have a blended family and your current spouse is not your children's parent, a QTIP (qualified terminable interest property) trust may be what you need. Also set up by your will, the QTIP is designed to ensure that your spouse can receive income and assets upon your death. Then after she passes away, the assets will go to your designated heirs -- most likely, your children.
   

• If you prefer that your grandchildren (and not your children) be the beneficiaries of your estate, you may set up a generation-skipping trust. For 2008, the exclusion amount is $2 million and $3.5 million in 2009.
   

• For those who have particular charitable interests, a Charitable Remainder Trust will bestow some tax benefits for making large donations to a charity.
   

• If you want to keep the proceeds of your life insurance out of your taxable state, you may wish to consider an Irrevocable Life Insurance Trust.
   

As you can see, you can create a trust for almost any purpose. But before you make that appointment with your estate planning professional, there are a couple more things you need to know.

You must retitle any assets that you want protected by the trust in the name of the trust. Assets not retitled will be subject to probate and may not end up with the heir you had in mind. Also, if you create a revocable living trust, you will need a will that provides direction for any of your assets that might not be covered in your trust.

Next, only you can decide who will benefit from your death, so make sure you sit down and give serious thought to the distribution of your assets, which assets to include in your trust, and who you will name as trustee to administer the trust. Your estate professional can then help you decide which type of trust will work best for you and your heirs.

Lastly, you will need to make sure that you notify your bankers and brokers and provide them with a copy of your trust document. And don't forget that life has a way of constantly changing, so it's imperative that you periodically review your trust to ensure it remains in alignment with your wishes.

This concludes this week's issue of Financially Fit.  We encourage you to visit our website to review past issues of Financially Fit:

http://www.brokeradviser.com/newsletter.cfm


Disclaimer & Important Information

Financially Fit is owned and published by Business Financial Publishing, LLC of Washington D.C.  Business Financial Publishing is neither a registered investment adviser nor a broker/dealer.  Readers are advised that this electronic publication is issued solely for information purposes and should not to be construed as an offer to sell or the solicitation of an offer to buy any security.

The views expressed herein are based upon our analysis of the issuer's public disclosures, and assumes both their accuracy and completeness.

The opinions and statements included herein are based on sources (including the companies discussed and public sources) believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. We have not independently verified the information contained herein. This information is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. We encourage you to consult with independent financial advisors with respect to any investment in the securities mentioned herein. You should review a complete information package on all companies, which should include, but not be limited to, the Company's annual report, quarterly reports, press releases and all regulatory filings. All information contained in Financially Fit should be independently verified with the subject company. The foregoing discussion contains  statements which are based on current expectations, estimates and projections, and differences from such expectations, estimates and projections can be expected.

Financially Fit is intended only for residents of the United States. Financially Fit is not for residents of the United Kingdom and is not an approved publication by the Financial Services Authority in the UK.

The information contained in this newsletter is not intended to be a complete discussion of information regarding all of the current and/or intended business activities of the covered companies. Any opinions expressed in Financially Fit are statements of judgment as of the date of publication, are subject to change without further notice, and may not necessarily be reprinted in future publications or elsewhere.

Business Financial Publishing and its members, managers, writers and employees do not accept compensation from the companies discussed within Financially Fit, nor any of our individual newsletter publications (Growth Report, Rising Star Stocks, and Top Stock Insights).