Wealth through the generations: 9 Types of Trusts to consider creating

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Published on Tuesday, 25 August 2020 10:18

Last Updated on 25 August 2020

Monica Costa

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A trust is an arrangement in which a third party is trusted to hold something of value for the future receipt by a beneficiary or beneficiaries. These nine types of trusts are the most common.

1. Revocable Trust

Revocable trusts, also known as living trusts, are made while the person creating the trust, the grantor, is still alive. That allows the grantor to amend or revoke the trust during their lifetime. For additional information, contact a Wills and trust attorney.

A major benefit of revocable trusts is that upon the grantor’s death, the assets covered by the trust are not subject to probate. It does not, however, protect the assets from debtors or creditors during the grantor’s lifetime. Often a revocable trust becomes an irrevocable trust after the grantor’s death.

2. Irrevocable Trust

Irrevocable trusts are also made while the person creating the trust is alive but cannot be amended or revoked once it is established. The primary advantage of an irrevocable trust is that the assets contained in this trust will not be factored into the grantor’s taxable estate upon death.

3. Asset Protection Trust

Asset protection trusts are created to protect a person’s assets from future creditor claims. Although they are often established outside of the United States, the contents of an asset protection trust are not required to be transferred abroad.

An asset protection trust is typically irrevocable for a predetermined number of years. When that time is up, and the grantor is no longer in danger of creditor claims, control of the assets are returned to the original owner.

4. Charitable Trust

A charitable trust is an irrevocable trust established to benefit a charitable organisation. Along with being a kind act, a charitable trust also helps to mitigate estate and gift taxes.

A charitable remainder trust (CRT) is a type of charitable trust in which the grantor receives financial benefits while also supporting a charitable organisation. The grantor is often acknowledged for their philanthropy while they are still alive to appreciate it.

5. Constructive Trust

A constructive trust is not an actual trust; it is considered an equitable remedy, applied at the discretion of the court, to fix a situation of unjust enrichment. For example, if property or assets are obtained by illegal means such as fraud, a constructive trust will return the property to its rightful owner. Once this occurs, the constructive trust is concluded.

6. Special Needs Trust

A special needs trust is usually established by the parents or guardian of a person who receives government benefits because of their disability or special needs. In the absence of this trust, the person could stand to lose those benefits if they were to receive an inheritance or large gift. If the special needs person expects an inheritance, they can establish the special needs trust themselves, naming another person as trustee.

Proceeds from the special needs trust are often used to provide the recipient with amenities they would not otherwise be able to have and can include medical equipment, education, rehabilitation, computer equipment, vacations and other items to better their life. Typically special needs trusts contain a provision to immediately terminate the trust if they are threatened by government benefit termination.

7. Spendthrift Trust

A spendthrift trust is designed to support a beneficiary who is not good with money management as well as to protect the contents of the trust from the beneficiary’s creditors. A third party has full control of how the proceeds of the trust are distributed.

8. Tax Bypass Trust

A tax bypass trust allows a spouse to leave assets to the surviving spouse while alleviating the tax burden to their children upon the second spouse’s death.

9. Totten Trust

Creating a Totten trust is another method of avoiding probate. A Totten trust is created while the grantor is alive and is used only with financial accounts; it cannot be used for real estate. When the grantor dies, these financial assets are not subject to probate.

If you feel that any of these trusts would apply to the management of your estate, contact your attorney for more information and assistance.