Deciding Between Various Types of Trust
It can be difficult to think about what may happen when you pass on. There are so many aspects that you simply cannot control, but you can attempt to comfort your loved ones and set out the steps you would like to be taken to lessen the decisions demanded of them in a trying time. Often- times people set their wishes out in a will, or they choose to use a trust to keep information more private. A will can be used to create a trust or a trust can be declared alone.
The person creating the trust is often called the Trustor or Settlor. They provide information and rules for the trust and fund it with their assets. The trust itself owns assets that are titled in the name of the trust. The trustee administers the trust property along the wishes and rules of the trust as a fiduciary, holding title to the trust property. The Trustor designates the beneficiary of the Trust upon creation. The beneficiary receives the benefits of the trust. There are many types of trusts that can be created.
A trust can be used to provide for your loved ones and causes as you desire. You can have a flexible trust that allows you to make changes throughout your life time or make a firm plan, protect your assets, provide for your favorite charities, plan for disabled relatives, spouses who may outlive you, or an array of desires in between.
The most common type of trust is a revocable trust. This is made while the Trustor is alive and the Trustor can be changed or revoked entirely during the Trustor’s life. This type of trust is known as an inter vivos trust is often used by the Trustor changing title of their property, transferring it to the trust. They then serve as the first Trustee, with the ability to remove the property and change the trust during their lifetime. Since the trust owns the assets when the Trustor dies, probate can be avoided. This however, does not protect the trust property from creditors. It does, however, add a step for a creditor to access the assets. This trust usually becomes irrevocable upon the death of the Trustor.
Asset Protection Trusts
Asset protection trusts are designed to protect the Trustor from creditors in the United States. These are irrevocable for a term of years and any undistributed assets are returned to the Trustor upon termination, provided there is no current risk of a creditor seizure.
Charitable trusts are created to benefit a charity or the general public. Often these are used to reduce or avoid estate and gift taxes. Charitable remainder trusts allow the Trustor to enjoy the benefits of their property during life as initial trustee, and know their philanthropy will be honored by their designated charity who is named as beneficiary upon their passing.
An irrevocable trust is a trust that cannot be altered after its creation, not even by the Trustor.
Special Needs Trust
Special needs trusts are used for people who receive government benefits, thus, they are structured to protect the beneficiary from being disqualified for those benefits. The disabled beneficiary cannot revoke the trust, control the frequency or amount of the trust distributions. This allows the beneficiary to have the benefits of the Trust without making that person ineligible for needed government benefits. The trust can provide for maintenance of the beneficiary not being provided for by a government agency. These special needs can include a wide range of expenses, medical, educational, treatment, rehabilitation, transportation, dietary, insurance, electronic equipment, actions, spending money, movies, payment for a companion and a variety of other items to help the beneficiary. The key is the structure of the trust which limits the beneficiary’s control while still meeting their needs.
Spendthrift trusts protects the trust property from the beneficiary’s creditors as long as it stays within the Trust. Upon distribution out of the Trust to the beneficiary the property is no longer protected from the creditor. It also blocks the beneficiary from committing the Trust assets.
Tax By-Pass Trust
Tax By-Pass Trusts are used to allow spouses to leave one another money upon the death of one spouse while limiting the impact of the Federal Estate Tax. This saves the children of the couple federal taxes as it restructures the gift to children so it comes from both spouses rather than one.