Important Information About Different Types of Trusts
According to a survey, over half of Americans don’t have a living trust. If you’re one of these Americans, you may want to explore your options. This guide will help you get started.
What Is a Trust?
In order to set up a proper trust, you must fully understand what a trust is. Basically, it’s a legal arrangement that’s made between two or more people.
You can transfer certain assets to a trust. The most common trusts involve:
The Main Categories
There are two categories for trusts. An estate planning lawyer can provide you with more details to help you get set up with a trust, but it’s a good idea to do your homework regarding which kind of trust might be right for you.
A Revocable Versus Irrevocable Trust
A revocable trust gives the grantor the legal right to manage a property. After the grantor passes away, this trust will fundamentally function like a will. If there are any beneficiaries, they will get a portion of the assets.
An irrevocable trust has strict guidelines. No one can legally terminate, modify, or amend it without a beneficiary. The grantor gives a beneficiary the power to make these decisions.
The Types of Trusts
All trusts will fall into one of the main categories. The following trusts are the most common types.
Life Insurance Trust
With a life insurance trust, you’ll have more control over your insurance policies. It will also get rid of any estate taxes that may apply to your heirs.
Special Needs Trust
This trust is also called a supplement trust, and it benefits a person who has a disability. Anyone who is a part of a special needs trust can still pursue all government benefits. Typically, a concerned parent will set up a supplement or special needs trust for a child who is disabled.
A marital trust protects a family’s estates and assets from annual federal taxes. If a spouse passes away, it will transfer all assets to the settlor who was selected by the spouse. In many states, a marital trust is also called an AB trust. The A portion refers to the family, and the B part represents the trust.
Spendthrift trusts have restrictions. If you set up one at a law firm, your beneficiary won’t have full access to the trust principal, and they won’t have the legal right to transfer it to anyone. It pays out benefits every so often through a trustee, and the person for who the trust is established won’t have access to the trust all at once and can’t promise it to anyone else, like creditors.
Married couples often set up a bypass trust because it provides reasonable tax advantages. If one spouse passes away, this trust will void some federal taxes that could apply to the assets. Normally, the goods are divided into two individual trusts. The family gets a share, and a second party acquires a share.
A charitable trust will require a beneficiary, a trustee, and an author of the trust. The author of the trust declares the confidence, and the trustee accepts it. The agreement will apply to the beneficiary when the negotiations are done.
This particular trust is essentially a provision of a trustee’s will. It gives a trustee the ability to control assets after someone passes away. A legal practitioner will often recommend a testamentary trust if a beneficiary is disabled or is still a child. If you want to ease any possible estate tax liabilities for your beneficiary, a testamentary trust can help. It can also improve how all of your assets are managed.
A generation-skipping trust grants legal rights to the next generation of family members. This means that you can’t set up this trust for your kids. You can only set it up for your grandchildren.
This trust is convenient because it’s easy to set up. Basically, it will allow you to transfer money after someone passes away without arranging a proceeding at a probate court.
If you need advice from an estate planning lawyer, turn to The Knee Law Firm. Our agents help people in Hackensack, New Jersey, and the surrounding areas. Contact us today at 201-996-1200.