Are you aware that there are different types of trusts? If you are planning to create an estate plan, you should be familiar with the basic types of trusts. In the following paragraphs we will discuss some of the basics about trusts and their differences.
To start, who are the parties involved in a trust? The trustor, grantor, settler, or creator is the person who creates the trust. The beneficiary is the person who receives distributions from the trust. The trustee is the fiduciary who manages the trust property. One person can serve in more than one role at a time. A person may be the trustor, trustee, and beneficiary simultaneously. In the alternative, more than one person can have the same role, as in co-trustees or co-beneficiaries.
According to the terms set forth in the trust document, trustees have discretionary or non-discretionary authority in distribution. A beneficiary can receive income or dividends from money earned by the trust, as well as possibly principal. There could also be a remainder beneficiary who receives what is left after the primary beneficiary passes away. Even though a trust is a legal document, the trust is not deemed created until the property has been transferred into the trust.
Below are the four most common types of trusts which include revocable, irrevocable, special needs, and spendthrift trusts.
• A revocable trust is commonly used by married couples. To a large extent, it can perform many of the functions of a will. The benefit of this trust is that the grantor has the ability to change or revoke during life, and it can allow trust assets to avoid probate following the grantor’s passing.
• An irrevocable trust mostly cannot be modified or revoked. It has many benefits, including tax benefits, protection of assets from creditors, and utilization in long-term care planning to exclude a person’s assets from his or her eligibility determination for Medicaid.
• A special needs trust is created to provide for an individual who needs assistance for life, often a child of the trustor. The key to a special needs trust may be its language, which ensures the beneficiary can receive financial support from the trust without being disqualified from government programs for those with special needs.
• A spendthrift trust is an irrevocable trust. The key provision limits the beneficiary’s access to the trust principal. The beneficiary and the beneficiary’s creditors, other than some limited exception creditors, cannot force distributions. Often the spendthrift provision is used when the trustor wants the beneficiary’s spending monitored, such as in the case of a person with a substance abuse disorder.
Now that you have the knowledge of the different types of trusts used in estate planning, it is a great time to meet with a qualified estate planning attorney to discuss the right trust for you. Our Stuart estate planning lawyers take a very different approach from what you might have come to expect. Our goal is to create lifelong relationships with each of our clients, to guide and manage your estate plan for the rest of your life. Please contact our office to learn more.