Estate Planning 101: Different Types of Trusts

12 Oct Estate Planning 101: Different Types of Trusts

The estate planning process can be overwhelming and complex at times, but the sooner it is finalized the more peace of mind will come to you and your loved ones.

One way to ensure financial longevity is to establish a trust. A trust is a legal document that allows a grantor (creator of a trust) the ability to set specific conditions on their assets in the event of their incapacitation or death. Since people have different backgrounds and familial situations, there are a variety of trusts that can accommodate.

Revocable Trust

A trust created during lifetime in which the grantor is allowed to to terminate, revoke, modify or amend the trust during their lifetime.

Irrevocable Trust

A trust that cannot be revoked or modified once it is established.

A-B Trust

A trust created by a married couple with the objective of minimizing estate taxes. Each spouse places assets into the trust and names the final beneficiary, which will not be their spouse. This option gets its name from the fact that it splits into two upon the first spouse’s death – trust A or the survivor’s trust, and trust B or the decedent’s trust.

Bypass Trust

Another name for the “B Trust” in A-B trust planning because this trust “bypasses” the federal estate tax in the decedent’s estate and at the surviving spouse’s death.

Charitable Lead Trust

A trust created during a person’s lifetime or at death that distributes an annuity to a named charity for life or a certain amount of years.

Special Needs Trust

A trust that provides for a disabled individual and is eligible for government financial aid.

Marital Trust

A trust established to hold property for a surviving spouse in an A-B trust, and designed to qualify for the marital deduction.

Qualified Domestic Trust

A marital trust that allows a non-U.S. citizen spouse to qualify for the marital deduction.

Qualified Terminable Interest Property

Property held in a marital trust that qualifies for the marital deduction until the surviving spouse dies.

Testamentary Trust

A trust in a person’s will that becomes active after probate and assets have been distributed.

With the establishment of a trust comes the protection and security of your family’s estate as well as your peace of mind. It is recommended that an individual meets with an estate planning attorney to discuss advantages and disadvantages of different types of trusts to better determine which is best for their estate plan.

Scheduling a meeting with an estate planning attorney can keep you well-informed on the matter, as well as jump-start the process.