A trust is a type of legal document that is created during a person’s lifetime, and is designed to survive them after death, although a will may create a trust upon their death. A trust is used to contain various assets, and once they are added, they become the property of the trust rather than the trustee. This is done to one day give the contents of the trust to another person. If one is intending to have a trust created, it is important to know that there are multiple types of trusts that can be used in estate planning, which we will be looking at in this article.
The different types of trusts used in estate planning
First off, we are going to look at revocable trusts, also known as a living trust. A revocable trust is a type of trust created over the lifetime of the trustmaker. As the name implies, the trust is not final; it can be revoked or otherwise modified. One of the biggest advantages of going with a revocable trust is that the trustmaker can remove property from the trust after having added said property to it. This can be used for the sake of avoiding having to deal with probate. This is because, should the property be under the ownership of the trustee as part of the revocable trust, said property will not be subject to said probate. It should be noted, however, that this is not a catch-all approach that one can take in order to avoid having property be the subject of the purview of creditors. While it does make it more difficult for them to get access to property held within the trust, there is still a chance that they may be able to get to it. This would be accomplished by the creditor seeking a court order to get access to the assets held in the trust. A revocable trust will usually become an irrevocable trust upon the date of the trustmaker’s death. An irrevocable trust, unlike a revocable trust, cannot be modified in any way, shape, or form, even by the person who established the trust in the first place.
While current creditors may create an issue for a revocable trust, future creditors can be handled with the creation of an asset protection trust. The way that these are set up is that trustmakers create the trust outside the United States, though this does not mean that the assets being included in the trust need to be located in the country that the trust is located. This kind of trust typically lasts for a number of years and is irrevocable for this period of time, and it is intended that the trustmaker not be a beneficiary of the assets, such that the creditors cannot claim this property in a creditor attack. Once enough time has passed to prevent these assets from being targeted by future creditors, the trustmaker can regain control over these assets.
Next up is a constructive trust, which is established by a court based on certain information; particularly, the court can decide that there is evidence that even if there was not a formal trust established, there was a clear intention by the would-be trustmaker to set it up, but they were unable to do so in the end. Meanwhile, a charitable trust exists to create a trust that benefits a charitable organization and/or the public in general. A special needs trust is specifically set up so that people who require special needs, such as disability payments, do not lose access to these payments by virtue of them having access to the assets in this trust. A spendthrift trust is a trust which the beneficiary cannot sell or pledge their interests in the trust and protected from the beneficiaries’ creditors until it is distributed to them.
A tax by-pass trust’s major benefit is that it allows a spouse to leave money to their spouse while also limiting the amount of federal estate tax payable upon the death of the second spouse. This helps their children get the most out of the trust, and the savings is no drop in the bucket. Finally, a Totten trust refers to a type of trust that can be summed up as a “payable upon death” bank account, and one that, like a revocable trust, allows the assets included within from being the subject of a probate.
If you need assistance setting up a trust, your best option is to work with the skilled people at Church, Langdon, Lopp, Banet Law, who can help you out.