Types of Trusts
What is a trust?
A trust is a legal entity created to hold property, or to conduct business on behalf of a beneficiary. There are three important roles in a trust, Grantors, Trustees, and Beneficiaries. The Grantor is the one who sets up the trust and places the assets into it. The Trustee is the one who controls the trust and guides the actions of the trust. The beneficiaries are those who receive from the trust. There are many ways to set up a trust and as a result we have various types of trusts. Each type of trust is meant to handle the property held in the trust in a particular way or for a particular purpose. There are benefits for the different kinds of trusts and there a variety of reasons a person would use a particular kind of trust. Let us examine several of the different types of trusts and how they are used.
A living trust is commonly created to allow the wishes of the Grantor to be executed quickly after death. Assets It allows the trust to move assets forward without having to go through the time and costly process of probate court. The main thing is that a living trust is created while the Grantor is still living.
Revocable and Irrevocable
We have an article detailing the differences between a revocable and irrevocable trust here. Essentially a revocable remains taxable and an irrevocable is not. An irrevocable trust is unable to pull out any of the assets or properties in a person’s lifetime hence the name irrevocable trust. For more detail please read our article outlining the difference between an irrevocable and a revocable trust. Can a Grantor be a beneficiary in an irrevocable trust during their life?
Opposite to the Living Trust, a Testamentary Trust is created after the death of the Grantor. It is part of the “last will and testament” of the departed person. A testamentary trust will typically go through probate court before it can be created.
A charitable trust is just as someone might guess, a trust that has a non-profit organization or charity designated as the beneficiary. Normally this trust will be built up during a person’s lifetime and upon their death the trust will be handed out to those it has spelled out in the trust contract.
A constructive trust is not truly an actual trust. It occurs when someone has wrongfully possessed or come into possession of the trust. The trust is then taken through court and the court helps to remedy the situation by ordering the individual or persons who obtained the unjust enrichment to return the trust to the rightful person.
Special Needs Trust
A special needs trust is created to benefit someone who has a physical and/or mental disability. Often these persons are unable to manage their own finances and so the special needs trust is created to assist these persons. It is used until the beneficiary’s death or until the funds are expunged. The important part of a special needs trust and the basis for its creation is to help those with disability maintain the benefits they qualify for from the government. Since they have no control of the trust and are purely the beneficiary the SSI and Medicaid will not look at the trust. Any gain in money that they make from a lawsuit or something along those lines will automatically be added into the trust. The trust is also protected from any legal reprimands and inaccessible by any plaintiff.