It is not uncommon for people to think that if they have a valid will in place, they have taken care of all of their estate planning. Unfortunately, that is not true. Comprehensive estate plans involve more than just a will. Trusts, for instance, are one tool that help surviving family members and offer benefits for the person that created it during their lifetime as well.
Trusts are legal documents that create an arrangement between two parties: the trustee and the grantor. The grantor creates the trust and the trustee manages the trust in accordance with the wishes of the grantor. You have options when creating trusts for your estate plan. Below are 11 types of trusts you may want to consider when creating your estate plan.
The attorneys at Beth Santilli Law have vast experience crafting secure, detailed trusts, wills and more for South Carolina residents. Contact us today to start the estate planning process.
As the name suggests, a revocable trust is one in which you can revoke—i.e., change or dissolve. For example, you may create a revocable trust that designates your spouse as a beneficiary. If you get a divorce, however, you may want to change those terms. A revocable trust will allow you to do that. These trusts also allow you to act as the trustee and name someone as a successor trustee in the event you pass away.
You cannot make any changes to irrevocable trusts. For this reason, many people wonder why they would choose an irrevocable trust over one that is revocable. Irrevocable trusts are often used as a safeguard for certain assets so creditors cannot access them. Irrevocable trusts are also used as tax shelters and protect the assets from gift taxes.
Marital trusts are typically created by a person for the benefit of their spouse. After the grantor passes away, the assets within the trust, along with any income they generate, are passed on to the spouse named as trustee. Marital trusts also allow the recipient spouse to avoid paying estate taxes on the assets throughout their life. Any heirs of the surviving spouse, though, become responsible for any taxes on the assets remaining within the trust once they are passed onto them.
Also sometimes called “B” trusts or credit shelter trusts, a bypass trust is also created between two married people. A bypass trust is irrevocable and will transfer assets from one spouse to another after one spouse passes away. Surviving spouses do not control the assets directly. Instead, they are managed by the trustee, so the assets are not considered part of the estate. After the surviving spouse passes away, the remaining assets pass to the beneficiaries, without any estate tax placed on them.
There are two main types of charitable trusts you can create. The first is a charitable lead trust, which designates that certain assets are to go to a specific charity, while the rest are distributed to the beneficiaries of the trust. The second is a charitable remainder trust, which will allow you to receive income from your assets for a specific period of time. Any remaining income or assets go to the charity of your choice.
As the name suggests, a generation-skipping trust allows you to pass assets onto your grandchildren rather than your children. Your children will not have to pay estate taxes on the assets within the trust, but you can set the trust up in a way that allows your children to access any income the assets generate.
Life Insurance Trust
Life insurance trusts are another type of irrevocable trust that allow you to designate life insurance benefits for a beneficiary. After your death, the benefits from the policy are directed to the trust. The proceeds of the life insurance trust are then used to pay for any estate taxes. The trustee will then manage the proceeds on behalf of your heirs.
Special Needs Trust
A special needs trust allows you to provide for the financial needs of an heir with special needs. A special needs trust does not interfere with any government benefits an individual receives for their disability. For example, if you have a child with special needs and simply left them an inheritance in your will, it may reduce or stop the Medicaid benefits they receive. Placing the inheritance into a special needs trust will prevent this from happening.
A spendthrift trust is appropriate when someone believes their beneficiaries will spend their inheritance in a short amount of time. With a spendthrift trust, you can allow beneficiaries to receive certain assets at certain times, so there is no fear that they will be misused. For example, you may have an investment property that generates rent every month. With a spendthrift trust, you could stipulate that your beneficiaries can access the income the property generates but not the principal amount of the property itself.
After you pass away, the testamentary trust allows for the distribution of your assets..
Also known as a payable-on-death account, a Totten trust allows you to place money into a bank account and name someone as the beneficiary. After you pass away, the money you have placed into the account is then passed on to the beneficiary.
Get Legal Help Today
Trusts are a great way to protect the assets you want to leave your loved ones from taxes, creditors, and even the beneficiaries themselves. You have many options when creating a trust, and those options can sometimes make the process overwhelming and confusing.
At Beth Santilli Law, LLC, our Mt. Pleasant estate planning lawyers can fully explain the different types of trusts, advise on which is best for your situation, and create it so the future of your loved ones can be protected. Contact us today to schedule a consultation and to learn more about how we can help.