Types of Trusts
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What Is a Trust?
A trust is a well-recognized legal instrument used to hold legal title to property for the benefit of one or more persons. Trusts are a great way to manage your property and saving the trouble of having your estate go through probate. Some of the common terms associated with trusts include:
- Grantor: The person creating the trust
- Trustee: Person or institution holding legal title to the property
- Beneficiaries: The people who are intended to benefit from the trust.
What Are Some Common Types of Trusts?
Trusts come in a variety of forms and can be established in many different situations. The most common forms of trusts include:
- Asset Protection Trusts: Designed to protect a person's assets from claims of future creditors .
- Charitable Trusts: Established to benefit a particular charity or the public. These are typically established as part of an estate plan to lower or avoid imposition of federal estate and gift taxes.
- Implied Trusts: These arise from particular circumstances in which a court determines that although there was not any formal declaration of a trust, the property owner intended the property to be used for a particular purpose or to go to a particular person. For example, suppose a neighbor asks you to take care of her car when she is on vacation and never returns; this is an implied trust as she was not making a gift of the car to you.
- Living or Inter Vivos Trusts: Created during the lifetime of the grantor. The most common type is a revocable living trust in which the grantor transfers title to property to a trust and has the ability to remove the property from the trust during his lifetime. Living trusts can be altered, changed, modified, or revoked.
- Irrevocable Trust: Cannot be altered, changed, modified, or revoked after its creation (absent extreme circumstances). Once a grantor transfers property to an irrevocable trust, he can no longer take the property back.
- Special Needs Trust: Established for a person who has received governmental benefits. Ordinarily when a person is receiving government benefits, an inheritance or receipt of a gift could reduce or eliminate the person's eligibility for such benefits. By establishing a trust that provides for luxuries or other benefits that otherwise could not be obtained by the beneficiary, the beneficiary can obtain the benefits from the trust without defeating his eligibility for government benefits.
- Spendthrift Trust: Established for a beneficiary in order to protect him from selling or pledging away his interests in the trust. Such trusts are beyond the reach of the beneficiaries creditors, until such time as the trust property is distributed out of the trust and placed in the hands of the beneficiary.
- Tax By-Pass Trust: Created to allow one spouse to leave money to the other. These limit the amount of federal estate tax that would be payable on the death of the second spouse.
- Testamentary Trust: A trust that is included under the terms and conditions established in a will. They take effect after the death of the person making the will.
- Totten Trust: Created during the lifetime of the grantor by depositing money into an account at a financial institution in his name as the trustee for another. This is a type or revocable trust in which the gift is not completed until the grantor's death or an unequivocal gift during the grantor's lifetime.
Do I Need an Attorney to Create a Trust?
Trusts can be structured to handle a variety of situations, but careful drafting is essential to make the plan work. If you choose to create a will or trust, consult with an attorney experienced in estate planning. The potential tax implications and legal formalities of will and trust drafting make a lawyer's counsel indispensable. A lawyer can explain all your options and help you understand what types of wills or trusts are right for you and your family.
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Last Modified: 05-16-2014 12:23 PM PDT
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