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Different Types of Trusts
Different Types of Trusts
Different Types of Trusts
Estate Plan Lawyer » Resources » Different Types of Trusts

Setting up trusts can become an important part of your estate plan.  So, what options are available if you are considering setting up a trust? Below we will explain the different types of trusts and we hope to give you a little more of an edge on your estate planning needs.

Simple trusts

You would consider setting up a simple trust if you want the trustee to distribute all assets to the beneficiaries upon your death.

A simple trust avoids the probate process associated with a last will and testament and so assets can be transferred to the intended beneficiaries without court delays.

Complex trusts (“discretionary” trusts)

As a grantor, you would set up a complex trust if you want the trustee to be able to decide the amounts and payment schedules of income or assets provided to the beneficiary.

For instance, you may not want a child to receive your assets until they reach a certain age to ensure a certain level of financial responsibility. Or you may prefer that the beneficiary receives progressively more assets upon reaching certain points in their life (e.g. when they reach university or get married).

Revocable living trusts

Revocable living trusts are set up when a grantor wants to set aside money, real estate, investments, a business, or another asset to pass on after they die.

It is “revocable” because while you are alive, you have full control over the assets with the flexibility to change asset distribution, beneficiaries, or terminate the trust at any time.

You are also tax-liable for the assets while you are alive and the assets can be claimed by creditors if you are sued.

After death, the trust becomes “irrevocable” and assets are transferred according to the last arrangements made.

Irrevocable living trusts

If you set up an irrevocable living trust, the assets it contains are no longer considered part of your estate.

This may provide certain tax advantages but it also means that you do not have the flexibility of a revocable trust. Discuss with one of our will and trust lawyers to find out more.

Special needs trusts

A special needs trust allows a grantor to protect the financial and medical needs of a family member with a lifelong illness or disability.

Providing family support can disqualify an individual from receiving public benefits or social security payments unless the support is set up in the right way. A special needs trust may be the solution you are looking for.

Life insurance trusts

With a life insurance trust, one or more life insurance policies are payable to the trust when the insured person dies.

If the trust is irrevocable, it can help protect the needs of loved ones who have special needs or protect against claims for those who have problems with creditors.

Charitable remainder trusts

Some people have excess assets or want to ensure they leave a legacy behind. Assets can be set aside for charitable purposes rather than left to loved ones via a charitable remainder trust.

After the grantor dies, assets are transferred to the trust and, because the trust is irrevocable, it may also provide the grantor with tax benefits during his or her lifetime.

Generation-skipping trusts (“Dynasty” trusts)

Someone who is more than one generation removed from a grantor of a trust is known as a “skip” person.

A generation-skipping trust may be a great option if you want to pass on assets tax effectively to your grandchildren.

Asset protection trust

All trusts protect assets to some degree. However, some people specifically want to protect assets from creditors.

Asset protection trusts allow you to do this legally in some parts of the U.S, such as Alaska, Rhode Island, Nevada, or another state where they are legal.

Bear in mind that they have strict requirements that you must meet.

Family trusts

Another way to protect assets from creditors is to set up a family trust. Any assets in a family trust are not considered your personal property so they cannot be touched in the event of bankruptcy.

If you set up a family trust, it is important to clearly detail how the assets are distributed to the beneficiaries and any circumstances that could make them ineligible to receive the assets.

AB living trusts (Credit shelters)

An AB trust is a useful “tool” for married couples who want to ensure that after one of them dies, the other is looked after financially AND after they are both gone, all assets are transferred to their children or other beneficiaries.

Restrictions of use are placed on the surviving spouse’s usage of the assets – and a key point is that they don’t legally “own” these assets. The assets are the property of the trust so savings on estate taxes can be a major motivation for creating an AB trust.

Avoid probate court. Start your trust today

At The Estate Planning Law Firm, PLLC, we believe that protecting the future of loved ones should not be difficult, stressful, or expensive.

That’s why we provide you with the opportunity to create trusts, wills, and other estate planning documents quickly and cost-effectively without the fuss.

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