A Trust is a common tool that we like to think of as the ‘Swiss Army knife’ of estate planning. Depending upon your unique situation, Trusts can be tailored to meet a variety of estate planning objectives and offer asset protection.
What are the different types of Trusts?
In general, Trusts can be divided into two categories: Living Trusts and Testamentary Trusts. A Living Trust is set up during a person’s lifetime. A Testamentary Trust takes effect after its creator’s death; they are usually included in a person’s Will or in a Revocable Living Trust.
Living Trusts can be structured in two basic ways:
- A Revocable Living Trust (RLT) allows you to continue to control your assets while you’re still alive; however, if you become incapacitated, your successor Trustee takes over and handles your affairs on your behalf. Upon your passing, an RLT acts like a Will to direct what happens to your assets after you’re gone, but can allow you to avoid the probate process. Revocable Trusts can be amended or revoked at any time before your death.
- Irrevocable Trusts are often used to make lifetime gifts, such as funding legacies for children or grandchildren, without completely giving up control over or access to the gifted assets. People often use Irrevocable Trusts to keep property or life insurance from being included in the Trust creator’s estate for estate tax purposes. They cannot be revoked or changed by their creator after they’re created, although depending on exactly how they are structured, it may be possible for others to make changes to the Trusts. These types of Trusts are often set up with you as the Trustor, your spouse as the Trustee, and your spouse and children as the beneficiaries.
Testamentary Trusts are generally considered irrevocable because they don’t take effect until after their creator’s death, but if contained in a Will or RLT, they can usually be changed at any time before the creator’s death.
Trusts for specific objectives
Building on these basic legal structures, Trusts can be used to address specific concerns, such as:
- Special Needs Trust or Supplemental Needs Trust. Using a Supplemental Needs Trust (also known as a Special Needs Trust or SNT), you can pass your assets to a child with special needs upon your death while still allowing the child to benefit from any government benefits they’re receiving.
- Generation-Skipping Transfer Trusts (GST Trusts). This type of Trust is designed to use the creator’s exemption from the Generation-Skipping Transfer tax and is setup to last throughout the lifetime of at least one generation of beneficiaries. In a typical GST Trust, the creator’s children will be the primary beneficiaries during their lives, and any remaining assets in a child’s share of the Trust will pass to the child’s children upon the child’s death. One variation of the GST Trust is the Perpetual Dynasty Trust, which is designed to last for many generations – potentially for hundreds of years.
- Charitable Trusts. A Charitable Remainder Trust or a Charitable Lead Trust allows you to leave a lasting charitable legacy through an Irrevocable Trust that benefits both charitable organizations of your choice and your desired individual beneficiaries. A purely Charitable Trust can also be used to create a private foundation or public charity that uses its funds to carry out charitable activities or to support other charitable organizations.
These are just a few of the ways that Trusts can be used to specify how your assets are distributed when you die. If you’re in the Atlanta area and would like to discuss your estate planning options, including Revocable Living Trusts, Irrevocable Trusts, Supplemental Needs Trusts or Special Needs Trusts and other kinds of Trusts, please contact the experienced attorneys at Morgan & DiSalvo.