Trust Varieties

 

A fundamental question often is: Will or Trust ?  A trust can serve the function of a Will substitute, yet hidden beyond this basic question in estate planning lies a host of different kinds of trusts.  Many particular kinds of trusts accomplish very specific objectives.  A “Living Trust” is a very general kind of trust that can act as a Will substitute; yet it also accomplishes the special purpose of keeping the trust assets outside of probate.  A Living Trust can also speed administration of trusts and somewhat enhance privacy.

Many varieties of trusts have specific tax motives.  One of the most common types of trust (aside from a Living Trust) is a Credit Shelter Trust.  This trust is also know by alternative name: A/B Trust and Marital/Family Trust.  All these names describe the same kind of trust.  The Creditor Shelter Trust is broadly useful for many families.  With the recent increase in the amount an individual can pass tax free to $5.12 million, the usefulness of credit shelter trusts has been reduced.  All clients with credit shelter and/or other tax motivated trusts should have them reviewed in light of recent estate tax changes.

A number a trusts accomplish more specific tax motives, a few examples are: residence trusts (QPRTs).  Family Savings Trusts and Irrevocable Life Insurance Trusts (Super and Crummey Trusts),  Charitable trusts (remainder/lead/uni-annuity, etc), trusts to transfer wealth to younger generations at a discount with respect to asset values (Grats Grits and Gruts), and trusts when a spousal beneficiary is not a resident or citizen (QDOT).

Trusts can also accomplish objectives in relation to Medicaid and disability of a beneficiary.  Medicaid rules can not be readily avoided by the simple use of a trust.  However, there are specific Medicaid income trusts for clients in particular circumstances.  Other Medicaid planning might well be done outside the trust format.  Disability of a beneficiary though can be readily handled in a trust format, through the use of a Special Needs Trust.

Because of the sour and dour economic outlook, the number of people in the US receiving government benefits has drastically increased in recent years.  Sometimes clients think that “only happens in someone else’s family,”  but many families have a child or grandchild that may be receiving, or might be receiving in the future, some form of government assistance (such as SSI disability).  Did you know that if you name as a beneficiary someone who is receiving government disability benefits, that you might actually be just leaving your estate to the government ?  This happens when the government simply reduces, or offsets, any estate or trust monies that the beneficiary receives from the government benefits.  But this result can be avoided by employing a “Special Needs Trusts.”

There are other kinds of trusts as well, for example Asset Protection trusts and Dynasty Trusts.   The decision of whether to adopt a Trust, and what kind of Trust, is a very important decision to make during your estate planning.  Consult your legal advisor and consider the decision very carefully.

A longer memorandum is available on estate planning choices, including whether to choose a Trust or a Will, for a free copy contact the author: by filling out the contact form on the “contact us” page of this website, by mail, email, or telephone.