Trusts – Types and Uses

Trusts – Types and Uses:  There are many forms of Trusts, other than a revocable or “Living Trust.”

Here are some types of trusts, with explanations of their uses and functions:

  • Family Trust – commonly a testamentary trust (created upon the death of the testator), usually gives income to the surviving spouse and the remainder to descendents, without the power of appointment found in the Marital Deduction Trust (below);

 

  • Family Estate Trust – A trust in which the grantor puts all of his or her property and future income in trust, and then acts as the trustee;

 

  • Gift Tax Exclusion Trust – a revocable trust designed to allow for annual exclusion gifting to persons under the age of 21 (resulting tax advantages);

 

  • Incentive Trust – either a revocable or testamentary trust, in which the trustee is given discretion to either grant or withhold distributions the incentive to achieve specified goals;

 

  • Insurance Trust – a living trust with its principal asset or assets consisting life insurance, usually on the grantor’s life, with distribution to be made pursuant to the grantor’s wishes;

 

  • Inter vivos Trust – also known as a “Living Trust,” simply means that it is one creater during the grantor’s lifetime, as opposed to a testamentary trust;

 

  • Irrevocable Trust – a living trust that cannot be revoked during the grantor’s lifetime;

 

  • Land Trust – a trust created to hold title to real estate, in which the trustee has no control over the property;

 

  • Life Insurance Trust – same as an insurance trust, created to hold life insurance proceeds and provide for distribution after the policy owner’s death;

 

  • Marital Deduction Trust – can be either living or testamentary, created in order to qualify for the marital deduction, giving the spouse the income for life and a power of appointment;

 

  • Totten Trust – also known as a “payable on death” account, either a bank account or some other asset, in which the grantor receives the income for life, and then upon the grantor’s death, the account is paid directly to the named beneficiary;

 

  • Spendthrift Trust – can be either living or testamentary, a trust which, by its terms , prohibits the beneficiary from transferring his or her interest, or protects the beneficiary’s interest in the trust from creditors;

 

  • Spray or Sprinkling Trust – living or testamentary trusts, in which the trustee is given discretion and power to determine the manner of distribution among beneficiaries.

When beginning the process of estate planning, a basic understanding of the various types of trusts, and their purposes, can be extremely useful.    Consideration should be given to the type of assets involved,  potential tax benefits, the intended beneficiaries and distributive scheme when making a determination as to whether an estate plan should include the creation of a trust, and if so, what type of trust should be created.

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