What is Important to Know About Trusts
A trust is a legal arrangement based on the administration of a trust creator’s property and assets by a third party. This third party will be a trustee and will work for the creator of the trust. How the trust is administered will be based on the governing legal agreement between the trust creator and the trustee. There will be a significant expectation of fiduciary duty to the trustee. A trust can be flexible as well as complicated. There are different types of trusts and each have their own individual advantages and disadvantages.
The classification of a trust will be based on many different factors. One factor is the revocability of a trust. When the trust agreement retains the right of the trust maker with consent of a third party or unilaterally to revoke the trust and take back assets in the trust; it is a revocable trust. An irrevocable trust does not have such a stipulation in its agreement.
This is a trust put in place during the lifetime of a trust maker and is designed to be altered, modified or revoked. Many times a revocable trust is referred to as a living trust. These trusts are popular as a way to avoid probate in the event a trust maker passes away. All the assets placed in this trust at the time a trust maker’s death will not be required to be part of a probate. A revocable trust is not an effective tool for protecting assets during the trust maker’s life. They will continue to be vulnerable to a trust maker’s creditors who try to use a court to obtain the assets during a trust maker’s lifetime.
According to the terms of an agreement setting up an Irrevocable trust, it won’t be legally possible to change, alter, modify or revoke the trust once it has been created. Once property and other assets have been placed in an irrevocable trust, it is not possible for the trust maker or any other person to remove any assets from it. Survivorship life insurance can be held in an irrevocable trust. It is possible to use this type of life insurance for estate tax planning with large estates. A trust maker may want to discuss this with a tax professional. This type of insurance policy in an irrevocable trust could provide significant negative tax consequences.
Asset Protection Trust
This trust is designed as a way to protect assets from any type of claims by creditors after its creation. It is possible to legally create such a trust in a country other than the United States. The goal of creating this type trust is to insulate certain assets from creditors who would want to obtain them. They are normally revocable trusts, and the assets are often returned to the trust maker after a specified period of time. A trust maker is usually able to regain control of their assets after creditor issues have been resolved.
Special Needs Trust
This is created for individuals who get government benefits. The goal of this trust is to make certain a person’s financial situation continues to make them eligible to receive such benefits. It is a legal trust and governed by Social Security rules. The disabled trust beneficiary is not permitted to have any control concerning the amount or frequency of any type of distribution from the trust. It is often an irrevocable trust.
These are designed to benefit a specific charity or the general public. They are often created as a way to avoid or obtain a lower payment of taxes. There is a Charitable Remainder Trust (CRT) that can be established and funded during the lifetime of the trust creator. This trust can be a tool for financial planning and can provide the person who creates it with various benefits during their lifetime.
Anyone interested in creating a trust should discuss it with an experienced attorney. They will know how to establish goals for a trust and have them described in a trust agreement. These legal professionals will know the type of trust that will work best for an individual situation and the important financial considerations with its creation. Give us a call at (844) 339-9553.