Trusts are a wonderful tool to help people accomplish their estate planning objectives. They can be used for tax planning, for long term care planning, for probate avoidance, and as a financial management device for your children and grandchildren. To know what type of trust is best for you, it is important to have knowledge of what types of trusts exist as well as an understanding of your own personal needs and goals.
In their most basic form, there are two types of trusts. There are living trusts which are created while you are alive, and there are testamentary trusts which are written into your Last Will and Testament and not technically created or funded until your death. Within those two basic categories exists many trust types which are chosen to best meet the needs of the family or individual for whom they are drafted. The most common of these include irrevocable trusts, revocable trusts, special needs trusts, credit shelter trusts and irrevocable life insurance trusts.
Irrevocable Trust: An irrevocable trust is one that is created in such a way that it generally cannot be amended or revoked without the consent of all the beneficiaries. After placing assets into an irrevocable trust, the donor or the creator of the trust is no longer the owner of those assets. This can be a great way to remove assets from your name and begin the process of protecting those assets in the event you have long term care needs.
Revocable Trust: A revocable trust is just what it sounds like. It is a trust that is created during your lifetime that can be revoked or amended by you alone at any time and for any reason. Due to its revocable nature, the creator is still considered the owner of any assets placed in the trust and is therefore not an effective tool for estate tax planning or long-term care protection. However, the revocable trust is useful in avoiding probate. This type of trust is commonly recommended for those seeking the privacy for their estate plan that a Last Will and Testament cannot provide, and for those who own real property in both their home state and another state as it can avoid having to probate their Last Will and Testament in two states and two different court systems.
Family Protection Trust: A family protection trust is something that is often built into a person’s Last Will and Testament. It will allow the testator to have some control over when an heir spends their money and what they spend it on. Further, it will protect the assets in the trust from any potential creditors of the heir as well as in the event they find themselves going through a divorce.
Supplemental Needs Trust: A supplemental needs trust can be established for the benefit of a disabled person or a person with special needs without interrupting any government benefits they may be receiving. This allows the trust creator to set aside funds for the disabled individual that can be used to supplement their lifestyle above or aside from what they are receiving in government benefits at the time of their inheritance.
Special Needs Trust: A special needs trust is similar to a supplemental needs trust; however it is funded with the disabled individual’s own assets. It is commonly utilized in the event the individual receives proceeds from a personal injury lawsuit and they would like to continue to receive their government benefits.
Credit Shelter Trust: A credit shelter trust is something used by married couples to minimize estate taxes. Everyone has an amount that can be passed in their estate free from estate taxes. Credit shelter trusts are utilized to ensure that the amount that can be passed tax free to your heirs is used by both spouses thereby minimizing the estate taxes that will be due on the death of the second spouse.
Irrevocable Life Insurance Trust (“ILIT”): This type of trust is designed to own your life insurance policies and to remove them from the value of your estate thereby minimizing the amount of estate tax that will be due upon your death. This type of trust is irrevocable and once you have transferred your life insurance policy to the trust you can no longer change the beneficiaries or borrow against the value of the policy.
Call the Law Offices of Roman Aminov to speak to a knowledgeable estate planning attorney about what type of trust is best for you and your family.
This article is for educational purposes only - to provide you general information, not to provide specific legal advice. Use of this post does not create an attorney client relationship and information contained herein should not be used as a substitute for competent legal advice from a licensed attorney in your state.
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