Understanding The Different Types of Trusts Available
A trust is a documented plan that can be created while a person is alive but will survive once the person has passed away. Trusts can also be created as wills; however, these documented plans will typically not be initiated until after death. Once a person’s assets are placed into a trust, they no longer belong to the settler; rather, they belong to the trust within itself. These assets will then be held to the rules and guidelines of the contract created for the trust. Since there are many different types of trusts, you want to choose the right one for your situation.
Fundamentally, a trust is the process of assigning the rights of a property and/or other assets to a trustee’s loved one(s). The trustee refers to the individual who has the ownership and control and title of the trust property and assets. A beneficiary refers to the individual who will receive the benefits of the trust. Although there are various types of trusts, the most common are revocable and irrevocable trusts.
The following is a brief list of the some of the most well-known forms of trusts. If you or someone you know is considering drafting a trust, speak to a qualified estate planning or trust attorney. These professions have experience in the matter and can guide you through the process. An experienced attorney will be able to direct you in choosing the best type of trust for your situation.
Revocable Trusts are formed by the trust maker “settlor” and can be changed, altered, adapted or entirely revoked. A Revocable Trust is also commonly known as a living trust. These forms of trusts involve the trust settlor, assigning the title of a property to a trustee. The trust maker has the power to retract this assignment during his or her life. Many people choose to use a Revocable Trust in order to avoid probate.
While a Revocable Trust can be a convenient way to avoid probate, it will not completely protect the property or assets. Assets or other properties allocated to the trustee during the trust maker’s lifetime will still remain accessible to the trust maker’s creditors. It does, however, delay this process for creditors by making it more difficult to access the property or assets. With a Revocable Trust, creditors must request a court order to retain access to the property and/or assets in question. It is common for a Revocable Trust to develop into an Irrevocable Trust once the trust settlor has passed away.
Irrevocable trusts are those that cannot be changed, altered, modified or annulled once they have been created. Once the property or assets have been reassigned through the progression of an irrevocable trust, there is not one person, including the trust settlor, who can remove the property or assets from the trust. While the sense of finality seems rigid, there are certain benefits to these types of trusts and an experienced attorney can better determine if an irrevocable trust meets your needs.
Asset Protection Trusts
The use of an Asset Protection Trust serves to protect an individual’s assets and/or property from the claims of prospect creditors. These forms of trusts are usually processed in countries outside of the U.S. They do not, however, need to be relocated to the foreign jurisdiction. Asset Protection Trusts serve to protect the properties and assets from creditor attack. Asset Protection Trusts are typically designed to be irrevocable for a certain period of time in order to prevent the trust maker from being a beneficiary for that time. The design typically consists of having the undistributed properties or assets of the trust returned to the trust maker after the termination of the trust, given that there is no risk of creditor demand. This will permit the trust maker to have the ability to regain control over protected properties.
Charitable Trusts are designed to benefit specific charities and/or the general public. Generally, Charitable Trusts are designed to be part of an estate plan in order to lower or completely avoid the imposition of an estate and/or gift tax. Charitable Remainder Trusts are funded during the grantor’s life and can serve as a financial preparation tool. This trust will provide the trust maker with valued benefits.
Constructive trusts are implied trusts. Implied trusts are established by a court and are developed from evident circumstances and facts. A court order can decide that although there was no formal declaration of trust, there was still the intention on behalf of the property or asset owner that the property or asset be given to a specific person, or otherwise be used for a particular purpose.
Special Needs Trusts
These forms of trusts are usually designed for individuals who receive government benefits. This makes sure not to exclude the beneficiary from these government benefits. Special Needs Trusts are entirely legal and thus permitted under the U.S. Social Security rules and regulations. Special Needs Trusts are allowable so as long as the beneficiary is not permitted to regulate the quantity or frequency of the trust’s distributions. Further, this individual is not allowed to revoke the trust. Usually, when a person is due to receive government benefits or inheritance, he or she could reduce or eliminate the eligibility for the benefits.
Parents or guardians of a child with disabilities can create a Special Needs Trust as a portion of their general estate plan. This serves to avoid the concern that the child will be barred from getting benefits when they are no longer able to care for the child.
A Spendthrift Trust is created to prevent the beneficiary from selling or pledging away the interests of the trust. To a certain degree, it also serves to protect the properties and assets from the beneficiaries’ creditors.
Choosing the Right Trust
Finding the right trust can be a complex and difficult matter. Speak to a qualified estate planning attorney who can guide you and help you understand the many different types of trusts. The right type of trust can protect your assets and loved ones when you no longer can.