How to set-up a trust.

Trusts can be set-up for a number of reasons and in a variety of ways. A few of the most common reasons for establishing a trust are to avoid estate taxes or the probate court process and protect your assets. There are many different circumstances and personal situations that make tailoring a trust to your specific needs and desires a necessity. Any offer of a trust that doesn’t also include getting to know your personal circumstances is probably not worth the paper it’s typed on. A trust needs to be tailored to address your specific goals and needs.

This article has been prepared to give you the basics of the different types of trusts. After reviewing this article, you may need to review your existing trust to make sure it includes those areas we discuss or talk to an experienced trusts and estate lawyer to prepare a tailored made trust that meets the goals and need of you and your family.

There are two primary ways to establish a trust, either as a Testamentary Trust or Inter Vivos Trust.  A Testamentary Trust is one that only comes into being at the time of the grantor’s death and this type of trust must go through the probate process in a court of law. The Inter Vivos Trust is one that is established during the grantor’s lifetime and is sometimes called a Living Trust.

Trusts can also be permanent, unchangeable without court approval, also know as Irrevocable. A more common trust is the Revocable Trust, which allows for modification or outright termination during the grantor’s lifetime. Revocable Trusts tend to be offered as the cure-all for every situation.

Here is a list of some of the more common types of trusts based upon the purpose they’re to carry out:

-Bypass Trust or Credit Shelter Trusts

-A Qualified Personal Residence Trust (QPRT)

-A Qualified Terminable Interest Property Trust

-A Special Needs Trust

-Education Trusts or 529 Plan

-A Pet or Equestrian Trust

A Bypass Trust or Credit Shelter Trust is usually a part of an overall estate plan for married couples where the value of the couple’s assets exceeds the federal estate tax exemption. This type of trust allows for the first spouse to maximize the exemption, while the estate continues to provide for the health, welfare, education and maintenance of the surviving spouse. After the passing of the surviving spouse the assets in the trusts pass to the beneficiaries. This is a simple strategy to avoid burdening the surviving spouse and remaining beneficiaries with unnecessary estate taxes.

A Qualified Personal Residence Trust (QPRT) is an irrevocable trust that holds only the grantor’s personal residence or vacation home. It is a straight forward strategy that removes the value of the home from the grantor’s estate. The grantor is allowed to live in the home for a fixed period of years. If the grantor is still living at the end of the fixed period of years, the home would go to the beneficiaries of the trust, normally their children or grandchildren, estate tax free. Even though there may be significant tax savings, the home will vest or become the beneficiaries, so careful planning is a must.

A Qualified Terminable Interest Property Trust (QTIP) enables the grantor to provide for a surviving spouse while maintaining control of the property and how the property will be distributed after the surviving spouse has died. Income and sometimes principal that is generated from the trust property is given to the surviving spouse to ensure their needs are provided for during their lifetime. This is often set-up when there are children from a previous marriage.

A Special Needs Trusts is specifically used to provide for the care and welfare of a disabled person and protect their assets while still allowing them to receive health and welfare benefits from the government. The purpose of this type of trust is to provide what the government benefits refuse to provide, for example, computers, summer camp, airline tickets for travel, vehicle for transportation, and lifestyle improvements.

An Education Trust is a means to provide for a child or grandchild’s college education or advanced degrees and receive estate tax benefits as well. There is also a provision in the Internal Revenue Code that allows for college funds to be established in what is known as a 529 Plan without creating a trust and the funds grow income tax free and withdrawals for qualified educational expenses are also tax free.

A Pet or Equestrian Trust allows for your pet or horse to receive proper care after the grantor’s death. While they used to be illegal, many states have made provisions for a grantor to set-up a trust that will provide care for the life of the pet without placing an undue burden on loved ones to care for the pet or horse.

There are many more trusts that fulfill specific purposes, for example:

-Spend Thrift Trusts

-Charitable Remainder Trust

-Charitable Lead Trust

-Irrevocable Life Insurance Trust

-Trusts for Minors

-Grantor Retained Annuity Trusts (GRATs) and Grantor Retained Unitrusts (GRUTs)

To find out what trust is right for you:

  1. Please visit the rest of this website, which is designed to provide you with critical information;
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  3. Call 818.369.7900 to set-up an appointment with Jeff Field