The Most Common Types of Trusts
Are you considering including a trust in your estate plan? Perhaps you are feeling overwhelmed about which type of trust is suited to your needs or whether or not you should include anything else in the plan, such as a medical directive. A trust lawyer can sit down with you and help you identify all of the tools that will protect both you and your family members.
There are many kinds of trusts, in fact, more than 30! However, there are some that are favorable to most peoples’ needs and tend to be most recommended by trust lawyers. Some of the most common types of trusts include:
A living trust is created by a grantor at some point in their life. They will transfer assets in the trust and, at any time, can amend or revoke the trust. Once the grantor dies, the trust becomes irrevocable. At this point, a trustee will be responsible for administering the trust which includes adhering to the guidelines that have been delineated in the document. There are many benefits to living trusts such as:
- This kind of trust will not be passed through probate
- Beneficiaries can receive their assets almost immediately
- There are protections against the incapacity of the grantor
- A living trust can include end of life provisions desired by the grantor
- They are completely private
As a trust lawyer might tell you, there are limitations to a living trust, such as:
- The Titling of a Property – There are certain properties that should not be included in a living trust. For example, in Florida, primary residences are shielded by creditors and when a property is placed into a trust, that protection may be surrendered. In this case, a lawyer might recommend a pour-over will.
- Creditor Claims – In general, a living trust is not protected from creditor claims. This is because the grantor is seen as the owner of the trust and can revoke their assets at any time.
- Taxes – All income that is accumulated, or earned by the trust is taxable and should be filed with the IRS.
An irrevocable trust is created by a grantor and assets are placed within. Once the assets are held by the trust, they cannot be removed. The trust can also not be modified in any way. There are benefits to this, such as reduced taxes and less risk of creditors being able to make a claim on the trust.
Also known as a trust under will, a testamentary trust is created after a grantor dies and with a will. A lawyer might recommend this type of trust when the following estate planning goals apply:
- Assets are to be preserved for children from a previous marriage
- You wish to secure your spouses’ financial future
- Ensure that any heirs with special needs are cared for
- When you wish to leave assets to a charity or organization