19Dec, 16

A trust is a legal relationship created to hold and invest property for the benefit of one or several others (the “beneficiaries”).  The person transferring property to the trust is known as either the “donor”, “settlor”, or “grantor”.  With a trust arrangement, property is transferred to one or more persons (the “trustee” or “trustees”) who are under a legal obligation to hold, manage, invest and distribute the property.

Some of the trusts you might consider using are:

Revocable trusts

A revocable trust is a legal instrument that is similar to a will. Like a will, the terms of your Revocable Trust can be altered or amended at any time by you and you can terminate the trust at your discretion. However, where a will does not take effect until a person’s death, a revocable trust can be used immediately simply by transferring assets into the name of the trust.  If you create a Revocable Trust during your lifetime you, generally, will still need to create a Will to distribute any assets you did not, of could not, transfer to your Revocable Trust.

Use of a Revocable Trust not only gives you more control how your assets are managed after your death, but also can avoid probate when properly set up. Probate can be time-consuming, slow, and result in additional legal costs. If avoiding Probate is an important goal, a Revocable Trust can help.

Irrevocable trusts

An irrevocable trust is a valuable estate-planning tool.  In contrast to the revocable trust, the terms of an irrevocable trust cannot be altered or amended by the Grantor.  With an Irrevocable Trust, the Grantor must give up complete control over those assets transferred into the trust to an independent Trustee.  The independent trustee, in turn, is the individual who manages the assets for the benefit of the trust beneficiaries.

The benefit of using an irrevocable trust is that, generally, all of the property in the trust, plus all future appreciation on the property, is removed from a person’s taxable estate. This results in a more tax efficient way to transfer wealth to beneficiaries. Property transferred to your beneficiaries through an irrevocable trust will also avoid probate.

There are several different types of irrevocable trusts.  These include:

Minor’s Trusts

A trust established for younger beneficiaries to provide for education and/or other needs of life.

Bypass and Spendthrift Trusts

A “bypass trust” is an irrevocable trust used to pass down assets to the children at the time of the second parent’s death.  It is structured so the children will not have to pay estate taxes on those assets in excess of the current estate tax exemption.

A “spendthrift trust” is a trust that cannot be attacked by a beneficiary’s creditors.

Supplemental Needs Trusts

A trust which allows a physically or mentally disabled or chronically ill person to receive income without reducing their eligibility for the public assistance disability benefits provided by Social Security, Supplemental Security Income, Medicare or Medicaid.  Trust assets are used to cover the percentage of a person’s financial needs that are not covered by public assistance payments. The assets held in the trust do not count for the purposes of qualifying for public assistance, as long as they are not used for certain food or shelter expenditures. Assets originally belonging to the disabled individual may be subject to public assistance repayment rules, but, generally, assets provided by third parties are not.

Charitable Trusts

Trusts can be created for advancement of education, public health and comfort, religion, or any other purpose regarded as charitable in law. However, not all benevolent and philanthropic purposes are regarded as charitable unless they are solely and exclusively for the benefit of the public or a class or section of it.

Irrevocable Life Insurance Trusts

An irrevocable trust can be made the owner and beneficiary of all life insurance, removing the proceeds from the estate of the insured and the insured’s spouse.

Generation Skipping Trusts

A trust in which the property is passed down to the grantor’s grandchildren, not the grantor’s children. The generation to which the grantor’s children belong skips the opportunity to receive the assets in order to avoid the estate taxes that would apply if the assets were transferred to them.

Pet Trusts

A valid pet trust is for the care of one or more of the grantor’s pets after the death of the grantor.  The trust terminates on the death of the pet and the law limits the amount of property that can be left for the animals’ care.

For more information about trusts or a free consultation, contact us.

This article is not intended to constitute legal advice, and should not be construed as a substitute for professional legal advice from a licensed attorney.


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