An Overview of Trusts

What Is a Trust?

A trust can be created to hold specific types of assets for an individual, business, or even a group. It is meant to survive the death of the individual. Additionally, it can be made after the death of the individual if it was created through their will. Any assets that are placed into the trust are then owned by the trust, not the individual who put them there or the trustees.

The trustee is the person or business that is entrusted with the assets that are in the trust. The assets are also subject to the rules of that specific trust as well as the instructions that were placed in the trust contract. While the assets do technically belong to the trust, all of the assets in the trust are put there to benefit another person, business, or group of people. The trustee is the person or business that actually holds the title to the property, and the beneficiary is the person or business that gains all of the benefits of the trust. There are many different types of trusts, but the two main types are irrevocable and revocable.

What Are Revocable Trusts?

Revocable trusts are trusts that are created during the lifetime of the individual. They can be changed, altered, modified, and even terminated during this time period.

Revocable trusts are also referred to as living trusts. This trust works by allowing a person to transfer the title of a property into the trust. They can also remove the property during their lifetime if they wish to do so. These types of trusts are beneficial to use when trying to avoid putting property through probate. This is because if the original owner (i.e. the one who placed the property in the trust) was to die, then the assets that are in the trust would avoid probate with other items as part of their estate that they acquired in their life. This is one of the main reasons that people choose to use revocable trusts. However, it is not a way to protect your assets, per se, because the items in the trust will still be available to the creditors of the person who made the trust, at least during their lifetime.

A revocable trust does make it more difficult for creditors to gain access to the property and other assets because they have to petition the court to do so, but it is not impossible. A revocable trust typically is converted to an irrevocable trust when the person who made the trust is deceased.

What Are Irrevocable Trusts?

An irrevocable trust is different from a revocable trust in that it cannot be changed in any way after it has been created. This means that it cannot be altered, revoked, or modified. Once something, such as a property or another asset, has been placed in this trust, then no one can take it out of the trust. This includes the trust maker too. This is the main difference between these two types of trusts. Other than that, they work the same way.

These trusts can hold property and other assets, but cannot protect the property and assets from other creditors. Additionally, with an irrevocable trust, you can purchase survivorship life insurance that can be placed in the trust as an asset. Typically, this type of insurance is used for large estates for tax planning purposes; however, this can have negative repercussions, so you should make sure that you set this up the right way before you do anything.

Asset Protection Trust

An asset protection trust is one that does just that: protects your assets. This type of trust is designed to protect the assets of an individual from any claims that future creditors may have against the individual. This is not a standard trust that is found in the United States as it is more common internationally. However, it does not always require that the assets be transferred to the foreign jurisdiction where the trust was created and is being held.

The idea is that this trust will protect your assets from a future creditor and not any current creditors. These tend to be set up as irrevocable trusts for a set term of years. Additionally, the person who makes the trust is not set as the current beneficiary during this time in order to provide more protection. However, it is usually set up so that the person who makes the trust will get all of the assets back at the time the asset protection trust is terminated. This is only true if there is no risk of creditors coming for the assets. This allows the trust maker to get back all of their assets that were placed in the trust and regain complete control over them.

Charitable Trust

A charitable trust is designed to benefit a specific charity. This type of trust can also be made to benefit the public in general. Many people choose to create these types of trusts as a way to lower estate tax as they are commonly placed in an estate. In this sense, it is a smart financial planning tool, and one that can help with a lifetime of benefits both for the person who creates the trust and also for the beneficiaries of the trust.

Constructive Trust

This type of trust is known as an implied trust. That means that it is a trust that has been created by a court. This is determined by the court based on specific types of circumstances as well as other facts that they may have at the time of the court decision and case. With this type of trust, there does not need to be a formal trust made beforehand. Instead—and this is the most common reason for creating a constructive trust—there is usually a type of intention from the property owner to create the trust. Whether they intend for the trust to be given to a specific beneficiary or if they want it to be used in a specific way, if there was intention for this, then the court can decide to create a constructive trust. This can completely change the way a trust is utilized and who gets the property, based on an intention that can be proven in court.

Special Needs Trust

A special needs trust is a type of trust that is reserved for a person who gets government benefits. The idea behind this kind of trust is that the trust will protect the beneficiary from becoming disqualified for those government benefits if they were to receive an inheritance. This is a legal type of trust and it is permitted under Social Security rules. However, it is only permitted if the disabled beneficiary does not revoke the trust and if they do not try to change the amount of the distributions or the frequency of them. Without this type of trust being in place, if the beneficiary of the government benefits were to receive a trust, then they could have their eligibility for their government benefits reduced or even eliminated. With this type of trust in place, they can still receive these gifts without losing their benefits eligibility in the process. There is typically a provision in the trust that says that if the trust could make the beneficiary ineligible for government benefits, then the trust could be eliminated. The idea is that the trust should be there to assist with a better quality of life, but if the benefits are no longer needed, then the government benefits will cease.

The term "special needs" has a very specific legal definition. It outlines what the needs are to maintain the happiness and comfort of someone who is disabled. It also outlines what those are when they are not being provided by the government, a private agency, or another type of public agency. There are many things that can fall under special needs in this definition, including:

• medical or dental expenses;
• education;
• treatment needed for their condition;
• rehabilitation, if necessary;
• insurance;
• transportation;
• dietary needs (even if very specific);
• trips;
• excess spending money;
• things to enhance self-esteem; and
• much more.

Even though the list is very specific, it is a very long list that does include a lot of things. A special needs trust is one that is commonly used by the parents or other family members of a disabled individual. This is done to ensure that the special needs of the individual can be taken care of by the trust. Many choose to do this in this type of situation so they know that their loved one will be well taken care of and will always have what they need if they are no longer there. This is also usually part of an estate plan. Someone who is disabled or has other special needs can establish their own special needs trust if they think they will be coming into an inheritance or other large gift, but they must name someone else, or another entity, as a trustee.

Tax Bypass Trust

This type of trust will allow an individual to leave money to their spouse. It also limits the amount of federal estate tax that the spouse would have to pay if the other spouse were to pass. It is true that some assets can be passed on to a spouse without any taxes being taken out, but there is a limit to this. Above that limit, there is an estate tax that must be paid, whether by the surviving spouse or by their children or other beneficiaries.

Totten Trust

A Totten trust is made during the lifetime of the trust maker. The trust is made by depositing the trust maker's own money into an account that is in their name with instructions that upon the trust maker's death, whatever is in the account will pass to the named trustee. The gift to the trustee is not available or ready until the individual who made the trust passes or some other type of unequivocal act happens during the lifetime of the trust maker. The beneficiary can be an entity or even an individual.

This type of trust, when distributed because of the death of the trust maker, avoids probate. The trust usually only holds securities and accounts that are with a financial institution. Some examples of accounts include:

• checking accounts,
• savings accounts, and
• retirement accounts.

It cannot be used to hold real property like other types of trusts. Many people choose a Totten trust because it is a safer way of passing on assets than with joint ownership. This can also be referred to as a poor man's trust because there is not usually a written trust document and it is usually free to establish through the financial institution.

How to Create a Revocable Living Trust

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