Different Types of Trusts
What special provisions do you need to accomplish your goals?
There are three categories of trusts that can be used when planning your estate: 1) a Testamentary Trust which is made in a Will; 2) a Revocable or Living Trust, that is made during your lifetime and can be revoked; and 3) Irrevocable Trusts which are made during your lifetime and cannot be revoked.
A Testamentary Trust is made at the time you make your Will. It is part of your Will. The terms of the Trust, the name of the Trustee, the name or names of those who will ultimately receive the property are all specified in the Testamentary Trust part of your Will. Therefore, the Trust does not come into existence until you die at which time it is irrevocable. The particular property you specified in your Will that should go into the Trust to be held for persons you named will be placed in the Trust and the Trustee you named in the Testamentary Trust will hold the property according to the terms you have included in the Trust.
Testamentary Trusts are often included in Wills where money is being left to a child or to children. The Testamentary Trust part of the Will specifies who the Trustee is who will take care of the money until it is time to distribute to the children. For example, the Testamentary Trust portion of the Will can state that Alice Smith will be the Trustee who will hold a certain amount of money for Brandon and Mary Wilson until they are 18 years old, then they each shall receive a certain amount each year until the money is gone.
A Revocable Trust is sometimes referred to as a Living Trust. This Trust is established anytime during your life and it can be revoked anytime during your life. This Trust will hold whatever property you want to put into the Trust. You name a Trustee to handle the trust property and you specify who is to reap the benefits of the Trust. When you establish this Trust you will no longer be the owner of the property you have placed into the Trust. Instead the Revocable Trust becomes the owner. You can name your self the Trustee and manage the property as you did before you established the Trust, and you can state in the Trust that you will be the beneficiary of the Trust during your like and you can state how the assets are to be distributed upon your death. Additionally, you can modify the Trust and you can revoke the trust. You can name a person to be the Trustee in the case you become incapacitated who can step in and manage your assets.
Revocable Trusts are often used to keep property out of the Probate Court process when your assets are distributed during administration of your estate. Since the assets are owned by the Revocable Trust and not you, they are not part of your estate. This can save Probate Court administration fees, can avoid a public listing of your assets at death, avoid a public listing of your beneficiaries and what they received, and can provide smoother distribution of assets that are difficult to value.
Just as the name suggests, once you create an Irrevocable Trust the property you place in the Irrevocable Trust cannot be taken back. When creating the Irrevocable Trust you must name a Trustee, other than yourself, to manage the property in the Irrevocable Trust. Since you will no longer own or manage the assets, the assets are protected from the reach of your creditors, and you are able to preserve your access to government assistance such are Medicaid, and avoid paying estate tax on the values of the assets in the Irrevocable Trust.