Types of Trusts

Types of Trusts

Revocable Trusts

Frequently, I have new clients coming to my office saying they need to set up a Trust. Often, they have come to this decision following the attendance of a seminar of some kind. They’ve heard about a very common, effective estate planning tool, the Revocable Living Trust. For many, it’s a great choice. For others, it’s overkill.

The benefits of a Revocable Living Trust include the following:

  • Avoiding probate
  • Reducing the chance of court dispute over an estate
  • Keeping one’s affairs private
  • Time and direction to settle complex estates
  • A vehicle to avoid estate taxes

The Revocable Living Trust is, as it sounds, revocable during the creator’s lifetime. It is created first through the Trust document, frequently drafted by an attorney. The next step is to transfer property into the Trust. This transfer is relatively easy.  While it’s best to place most items into the Trust immediately, a pour-over Will provides that assets not transferred initially, may be done so upon a death. You should consult an attorney, accountant or financial advisor on asset transfer because some investments, such as retirement accounts, can qualify as a taxable event when you place it into a trust.

I most often use the Revocable Living Trust for two reasons. First, I like to use it for married couples with estates exceeding death tax credit limits. Here, upon a spouse’s death, an amount up to the death tax credit can be disclaimed to avoid or reduce estate taxes, still having it available for the surviving spouse’s use. A second reason is where there are unusual or complex assets, such as a business or unusual real estate property. The Trust allows time to settle these unique assets and avoids the cost of a probate. A Revocable Trust at times can also be a good choice for a single person. An attorney will be able to tell you if a Trust is the right fit for your needs.

Supplemental Needs Trust or Special Needs Trust

A supplemental needs trust and a special needs trust are similar in that they allow an individual with a qualifying disability to accept and use funds without jeopardizing government benefits that the individual is receiving. The major difference is where the asset funding comes from and where it goes on the beneficiary’s death. The special needs trust is funded from the disabled trust beneficiary, frequently from a personal injury settlement. Upon the beneficiary’s death, the trust must repay the State for medical assistance benefits. The supplemental needs trust is created and funded by someone other than the disabled beneficiary and upon the beneficiary’s death may go to an individual designated by the person who set up the trust.

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