Understand the Different Kinds Of Trusts
There are many types of trusts. The main design of most of them is to avoid the court system no matter what happens in the future. Going through the court system is almost always more expensive and time consuming than using a trust. In general, a revocable trust can be changed after you set it up and an irrevocable trust cannot be changed once you set it up.
What is a Living Trust?
A Living Trust is a piece of paper, similar to a will, which sets out where your assets go when you pass away. A Living Trust, also known as a revocable trust, is designed to avoid probate. A Living Trust can be amended and revoked at any time. That means you can change your mind about who will be in charge and who you are going to leave your assets to when you die.
What Is a Life Insurance Trust?
Sometimes it is important not to have the death benefit of a life insurance policy counted as part of your estate for estate tax purposes. A Life Insurance Trust can be used to shield or legally hide the death benefits from the IRS.
What Is a Minor’s Trust?
A Minor’s Trust is usually set up inside a Living Trust. A typical situation would be Mom and Dad set up a Living Trust and upon their death they want their assets to go to their children. The parents decide how old a minor will be, who is in charge of the money (called a trustee) and how the money can be used. In Arkansas, the youngest a minor can be is 18. The most common age clients tend to pick is age 25. That means that before the age of 25, a trustee is in charge of the assets.
Do I Need An Estate Planner?
Yes- If you want to control what happens to your property after you pass, you must plan accordingly.
What Other Trusts Are There?
Other trusts include:
- Special Needs Trusts– These trusts set money aside for beneficiaries who have disabilities to use for expenses related to those disabilities.
- Credit Shelter Trusts– Also called AB trusts, these let you give your children money without paying estate taxes. They also specify that your spouse can tap into them for certain expenses if they survive you.
- Charitable Remainder Trusts– These distribute some of your assets to beneficiaries and donate the rest to charity, allowing you to avoid taxes.
Helpful Trust Terminology
The Grantor or Settlor is the name of the person who sets up the trust. They may or may not be the trustee.
The Trustee is the person in charge of the trust. They control the bank and investment accounts, stocks, bonds and land. Typically, backup or successor trustees are named in case the initial trustee can no longer serve.
The beneficiary is the person or entity entitle to the use of the assets inside the trust.
In a typical Living Trust, mom and dad are the Grantors, and initial Trustees and the beneficiaries. When mom and dad become incompetent, they are still the Grantors and beneficiaries, but no longer the trustees. When mom and dad die, then the children are the beneficiaries.
For more information on trusts and other ways to organize your assets, contact Estate Planners of Arkansas P.A. today. By understanding the different types of trusts, you can choose the one that suits you best.