A trust is a legal document that can be established during a person’s lifetime and will continue to exist after death. A trust can also be found through a will and founded after a person’s death. This page describes the most common types of trusts.
When assets are placed in a trust, they become the Trust’s property (such as a bank account), not the trustee (person). They are nonetheless bound by the trust contract’s rules and directives.
In essence, a trust is a claim to money or property held by one person or bank in a “fiduciary” relationship for the benefit. The trustee is the person who owns the trust property, while the beneficiary is the one who receives the Trust’s benefits. While there are other trusts, the two most common are revocable and irrevocable trusts.
Revocable trusts are created during the trust maker’s lifetime and can be updated, modified, or completely canceled. These trusts, sometimes known as living trusts, are those in which the trust maker:
- Transfers a property’s title to a trust.
- Assumes the role of the first trustee.
- During their lifetime, they can remove the property from the Trust.
Probate avoidance is made much easier with revocable trusts. The assets will not be subject to probate if they are transferred to a revocable trust during the lifetime of the trust maker and are owned by the Trust at the time of the trust maker’s death.
Irrevocable Trust is a type of Trust that cannot be revoked.
After it is established, an irrevocable trust cannot be updated, changed, modified, or revoked. No one, including the trust maker, may take a property out of an irrevocable trust once it has been transferred. Survivorship life insurance can be purchased, and the proceeds can be maintained in an irrevocable trust.
This sort of survivorship life insurance can help with estate tax planning; nevertheless, survivorship life insurance kept in an irrevocable trust might have major ramifications.
Trust for Asset Protection
An asset protection trust is a form of Trust created to shield a person’s assets against future creditors’ claims. Although the assets do not always have to be transferred to a foreign jurisdiction, these trusts are frequently established outside of the United States. The goal of an asset protection trust is to keep assets safe from creditors.
These trusts are typically set up to be irrevocable for a set period and exclude the trust maker from becoming a current beneficiary. The undistributed assets of an asset protection trust are often restored to the trust maker upon the termination of the Trust if there is no ongoing risk of creditor attack, allowing the trust maker to reclaim full control over the formerly protected assets.
Trust for charitable purposes.
Charitable trusts are trusts that benefit a specific charity or the general public. In most cases, charity trusts are established as part of an estate plan to reduce or avoid estate and gift taxes.
A charitable remainder trust (CRT) established during the grantor’s lifetime can be a beneficial financial planning tool for the trust maker. In addition to the monetary rewards, there is the intangible benefit of recognizing the trust maker’s compassion, as charities typically thank donors who name the organization as the beneficiary of a CRT right away.
A constructive trust is a trust that is inferred. A court determines whether or not there is an implied trust based on particular facts and circumstances. The court may conclude that, despite the lack of a formal declaration of trust, the property owner intended for the property to be used for a specific purpose or given to one particular individual.
While a person may acquire legal title to a property, equitable considerations may dictate that the property’s equitable title belongs to someone else.
Trust for People with Disabilities
A special needs trust is established for a person who receives government benefits to keep that person from losing those benefits. This is perfectly legal and allowed under Social Security laws. The disabled beneficiary has no control over the amount or frequency of trust disbursements, and the Trust cannot be revoked. Ordinarily, if a person is receiving government benefits, an inheritance or a gift could limit or terminate that person’s eligibility.
The beneficiary can acquire the advantages from the Trust without jeopardizing their eligibility for government benefits by forming a trust that provides for luxuries or other benefits that the beneficiary would not otherwise be able to obtain. A provision in most special needs trusts destroys the Trust if it may be utilized to render the beneficiary ineligible for government benefits.
Trust for the Spendthrift
A spendthrift trust is established for a beneficiary and does not allow the beneficiary to sell or pledge the Trust’s interests. Until the trust property is dispersed out of the Trust and delivered to the beneficiaries, it is safeguarded from the beneficiaries’ creditors.
Trust for Tax Avoidance
A tax by-pass trust is a trust that allows one spouse to leave money to the other while lowering the amount of federal estate tax that must be paid upon the second spouse’s death. While assets can pass tax-free to a spouse, when the surviving spouse dies, any leftover assets beyond the exempt amount will be taxed to the couple’s children, possibly at 55 percent. A tax by-pass trust avoids this issue and, depending on the value of the inheritance, might save the children hundreds of thousands of dollars in federal taxes.
Totten Trust is a charitable trust based in Totten.
A Totten trust is established during the grantor’s lifetime by depositing funds into a bank account in their name as the trustee for another. This is a revocable trust in which the gift is not finalized until the grantor’s death or unless the grantor makes an unequivocal act reflecting the heritage during their lifetime. A person or a company might be named as the beneficiary. Totten trust assets are not subject to probate after death.
A Totten trust is usually used with financial institution accounts and securities, such as savings accounts, bank accounts, and certificates of deposit. Real estate cannot be held in a Totten trust, and it is a safer way to pass assets down to family members than joint ownership.
To construct a Totten trust put identifying words in the account title, such as “In Trust For,” “Payable on Death To,” or “As Trustee For,” or the identifying letters for each, “IFF,” “POD,” or “ATF.” The beneficiary may not be recognizable if this language is not included. A Totten trust has been dubbed a “poor man’s” Trust since it often does not require a formal trust agreement and usually costs the Trust creator nothing to establish.
Find a Local Attorney to Help You Create a Trust Today
Creating Trust is an excellent approach to safeguarding your family’s assets and ensuring the safety of your loved ones. You may decide that the Trust’s complexity necessitates the assistance of an estate planning attorney, or you may want to learn more about Trust law legal solutions. Call a local estate planning attorney with trust experience to get ahead of the game and give your family some peace of mind.