A Primer On Different Kinds Of Trusts
When reading about estate planning, you probably hear a lot about different kinds of trusts. The names of trusts fly fast and furious, but rarely does anybody stop and just give you a basic primer on what these kinds of trusts do, and what they actually mean.
Here’s a short list with short explanations on the types of trusts that you’ll commonly read and hear about in the world of estate planning.
Irrevocable Trust – As the name implies, this is a trust that is set up, that cannot be reversed, dissolved or undone, although you can add property to the trust. The only way it can be undone, is with the consent of all beneficiaries, or court action.
Why would you want what sounds like such an inflexible trust vehicle?
It’s because your lack of ability to access what you put into the trust, or change its terms, can help you in a number of ways—much of what is in an irrevocable trust is shielded from creditors (making it great for those in high-lawsuit professions), and generally won’t count as part of your estate property, for the purposes of estate and other types of taxes.
Revocable (or Living) Trust – This is the opposite of an irrevocable trust. You get the ability to modify, dissolve, or change the terms of the trust, whenever you see fit. This provides much more flexibility, but doesn’t have the protections that an irrevocable trust has.
Testamentary Trust – This is a trust that you intend to set up, but it doesn’t exist until you pass away. The terms of the trust, and the intention to create it, are written into your will. Your will can establish multiple kinds of trusts on your passing.
However, because these trusts don’t actually exist until you pass away, these will not avoid probate, the way a trust set up before death will do.
Charitable Trust – This is just a trust where the proceeds benefit a charity. A nonprofit organization is the trustee. The trust proceeds can be allocated to both your beneficiaries, and a charity, and you can dictate which gets paid from the trust proceeds first.
AB Trust – An AB trust has two trustees, usually a married couple. There is one trust, but when one spouse passes away, the trust splits, so that the decedent spouse’s beneficiaries get the “B” trust and the surviving spouse, the “A” trust.
Spendthrift Trusts – These are trusts where the trustee yields a lot of discretion over when your beneficiaries get assets from the trust, and how much they receive. These trusts can be good for people who may be young or irresponsible, or if you just want some oversight to make sure assets are not wasted by beneficiaries.
Similar to spendthrift trusts, special needs trusts are set up for people with disabilities or infirmities; the assets left are managed by a trustee to take care of the daily life necessities of the disabled person.
Other Trusts – There are a number of other kinds of trusts, which tend to have very specific purposes.
For example, gun trusts or pet trusts as well as life insurance trusts, all have specific provisions to pass on or take care of property and valuables. Generation skipping trusts and GRAT trusts can have tax benefits for those with larger estates.
What kind of trust works for you? We can help you with that answer. Call the Torrance will and estate attorneys at Samuel Ford Law today for help with your estate planning needs.
Sources:
smartasset.com/estate-planning/types-of-trusts
usbank.com/wealth-management/financial-perspectives/trust-and-estate-planning/types-of-trusts-which-should-i-choose.html
