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What Are the Different Types of Trusts?

What Are the Different Types of Trusts?

A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary. With the right setup, assets in a trust can avoid taxation and probate and be handed immediately from the owner to the heirs. However, different trusts have different purposes and selecting the correct one for your situation can be tricky.

The Basics

When assets are placed into a trust they belong to the trust, and not the trustee. The person who creates the trust, known as the grantor or settlor, determines the terms of the trust and gives control of the assets in the trust to the trustee—with a legal obligation to administer it for the specified purpose. The person (or persons) who received the benefits of the trust is known as the beneficiary. A trust is meant to compliment a will and allows the grantor to implement their wishes in more detail.

Last Will & Testament

A will is a document that names recipients for property, guardians for children and a personal representative (executor) to handle the estate after the grantor’s death. Although a trust provides more control and unique advantages, a will is still needed.

Testamentary Trust

A testamentary trust is created as part of a person’s last will and testament. It helps manage assets for beneficiaries, but only takes affect after the person’s death. It does not avoid probate nor does it maintain privacy.

Revocable Living Trusts

A revocable trust, also known as “inter-vivos,” is created during the lifetime of the grantor, and can be changed or revoked entirely. As long as assets are transferred to the trust by the grantor while they are still alive, the assets are not subject to probate proceedings, which allows a beneficiary to get the assets sooner. A revocable trust also allows a grantor to select someone to manage their affairs without court intervention, if they are ever incapacitated. However, this kind of trust is not useful for protecting assets from taxation or creditors.

Irrevocable Trusts

An irrevocable trust cannot be changed after it is created, except in very rare circumstances. After it is created, assets in the trust cannot be removed by the grantor. Assets are not included in the estate’s value for tax purposes. The two most common reasons to make an irrevocable trust are to protect property and reduce taxes.

Advance Directive for Health Care

An advance directive for health care tells a doctor which treatments a grantor does or doesn’t want if they become incapacitated. It also names a person to decide what efforts should be employed to help keep the grantor alive should they face a dire health situation.

If you’re unsure about what kind of trust you should set up, contact our Long Island estate and trust litigation attorney at The Law Office of Michael J. Brescia, P.C. Putting estate planning off is not recommended, as it can result in lost wealth and other troubles. Don’t hesitate to reach out with any questions you might have.

Call (631) 386-8767 or contact us online for a free initial consultation.

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