Common Types of Estate Planning Trusts
Estate planning trusts serve many purposes. They can help minimize or avoid taxes. Trust assets generally don’t go through probate. Trusts can save time. Trusts generally are categorized as living trusts or testamentary trusts. A settlor (the person who creates the trust) creates a living trust while he/she is living. Testamentary trusts are part of a decedent’s will. They don’t formally become active until the decedent dies.
Some of the more typical estate planning trusts
An experienced Sebastian or Vero Beach estate lawyer reviews with seniors and anyone making a will the following kinds of trusts:
- Revocable trusts. In this type of trust, the creator of the trust reserves the right to control the assets. This includes the right to end or change the terms of the trust.
- Irrevocable trusts. Here, the settlor can’t change the trustee, the assets in the trust, the length of the trust, or any trust terms.
- Asset protection trusts. This type of trust is designed to protect assets from creditors. They are generally irrevocable for a term of years. They usually are set up outside of the United States.
- Charitable trust. These legal documents are created for the benefit of a specific charity or for the general public. There a several different types of charitable trusts.
- Constructive trusts. This is not a direct trust. They court creates them generally for purposes of equity and justice. The court basically decides that there was an intent to create a trust based on the underlying facts. For example, if a son-in-law forcibly evicts a senior from a mother-in-lawyer apartment when the daughter dies – in violation of the understanding the mother-in-law could stay there for life; the court may create a constructive trust for the mother-in-law so she can stay in the apartment.
Additional estate planning trusts
- Special Needs trust. These trusts are generally created for people who receive government benefits due to a disability. A properly crafted special needs trust will not disqualify the beneficiary from their current government benefits. Generally, these are irrevocable trusts. The beneficiary can’t control frequency or the amount of the trust assets. “Special needs” is a legal term of art. Typical needs include medical bills, equipment, insurance, money for rehabilitation, money for trips, and other needs.
- Spendthrift trust. This is a way to prevent creditors from seizing assets. Unlike asset protection trusts which protect claims of creditors against the settlor’s assets, this trust protects creditor claims against the assets of the beneficiaries. The beneficiary can’t sell or pledge trust assets.
- Tax bypass trust. This trust allows a spouse to leave money to the other spouse without taxes. The taxes are deferred (bypassed) until the second spouse dies. It helps reduce federal estate taxes.
Other types of trusts include totten trusts, generation-skipping trusts, A/B trusts, and qualified personal residence trusts.