What is a trust?

A trust is a legal relationship among a grantor, trustee, and beneficiary. A grantor gives legal title to property to a trustee. Then, the trustee has a fiduciary duty to hold or manage that property for the benefit of a beneficiary.

Why would anyone want to create a trust?

Some common reasons include minimizing the probate process, protecting the grantor or the beneficiary’s privacy, planning for minors or incapacity, protecting against creditors, and minimizing taxes.

Living Trust (also known as an inter vivos trust)

This trust is created during the grantor’s lifetime, which allows the grantor to benefit from the trust assets while living and pass them to the beneficiary upon death. These trusts can be revocable or irrevocable.

Testamentary Trust

This trust is created upon the death of the testator and is an irrevocable trust. Please see our first video, or the flyer for the first video, for more information on this kind of trust.

Irrevocable Trust

This type of trust cannot be changed or altered.

Revocable Trust

A revocable trust is created during the grantor’s lifetime. The grantor can change or terminate the revocable trust.

Special Needs Trust

This trust is helpful when there is an individual with access to assets which may disqualify him or her from receiving governmental disability benefits. The special needs trust can allow that person to benefit from the additional assets and receive the disability benefits because the disabled individual is the beneficiary of that trust, but may only receive distributions based on an ascertainable standard. Very often the HEMS standard is used: distributions may be made for the disabled person’s health, education, maintenance, and support. If distributions are made for any of these four purposes, which can be broadly interpreted, then they will not interfere with that person’s ability to receive government benefits as well.

Charitable Trust

This trust is irrevocable. The estate tax, just like income tax, allows for charitable deductions. Hence, if one gives assets to a charity through a trust, those assets may avoid estate tax. If one establishes a charitable remainder trust, then an annual payment is made to a non-charitable party, such as the grantor, with the remainder of those assets passed to the charity at the end of the term of the trust or at the grantor’s death. The reverse can also be established. That is, one can have a charitable trust which distributes annual payments to the charitable entity and the remainder passing back to the grantor or a beneficiary at the end of the trust term.

Non-Charitable Trust

This kind of trust is irrevocable. It does not have any human beneficiaries. Instead, it has a purpose that it is meant to advance. This purpose has to be reasonable and attainable. Examples of non-charitable trusts are those established for a pet, maintain a grave site, or to help maintain an art collection. At the end of the trust’s term, the assets are then distributed according to the terms of the trust.

ILIT – Irrevocable Life Insurance Trust

This trust is designed specifically to hold life insurance proceeds. If the beneficiary designation on the life insurance policy is the ILIT, then when the life insurance policyholder passes, the proceeds from that life insurance policy are paid into the ILIT. The ILIT’s trustee manages those assets for the benefit of the ILIT’s beneficiaries. This helps avoid estate taxes on life insurance payouts.

QTIP – Qualified Terminable Interest Property Trust

This trust allows one spouse to gift a life estate in property to the other spouse. In this way, federal gift tax can be avoided. That is, while there is an annual gift tax exclusion, if you give more than the exemption amount, then a QTIP can help. A QTIP ensures that the income from the trust is paid to the surviving spouse but the remaining assets in the original trust will be held until the surviving spouse passes and then the rest is paid to the beneficiaries.

How is a trust funded?

Anything with a title, such as a house, land, or banking account, needs to be retitled in the name of the trust. Thus, the deed to real property would need to be redrafted and rerecorded with land records before the real property is in trust. A bank account would need to be opened in the name of the trust and then the financial assets would have to be transferred into that bank account for the money or those assets to be considered in trust. A trust can also be listed as a beneficiary on accounts such as retirement accounts and life insurance policies. Personal property, such as jewelry, can be held in trust as well. This is accomplished through an assignment, which is a document added to your trust, listing all personal property to be held in that trust.

How long do trusts last?

Trusts can last across generations and will end for a variety of reasons. Trusts can include language describing when how or when the trust terminates. For instance, a trust may terminate when their purpose is served, when their term has run, or when the last beneficiary passes away.