By: Barry E. Haimo, Esq.
August 31, 2017
Understanding Different Kinds of Trusts
The best way to learn about the different kinds of trusts available to you is to sit down with a knowledgeable Florida estate planning attorney and explain what you are looking for.
Because there are simply too many to adequately cover them in a single blog post. It would take a book. Maybe we’ll write one some day. So for now, this post is not going to be comprehensive. It can’t hope to be. Instead, it is an overview of several different types of trusts that fall under the overall blanket categories of revocable and irrevocable trusts.
This type of trust is outlined in a decedent’s will. It is not created until after death, which means testamentary trusts must go through probate. These are not done as commonly as other trusts and for good reason; lifetime (inter vivos) trusts have advantages and minimize certain risks of contesting their validity.
Inter vivos Trust
Lifetime trusts or Inter vivos trusts (intervivos) trusts are as their name suggests, created during life. They take effect immediately. The longer they are administered the less likely their validity can be challenged. It is helpful to create these types of trusts for estate and business planning. These trusts can have significant benefits and mitigate disadvantages of failing to plan.
You’ve seen these types of trusts in movies and TV shows before. Minor’s trusts pass assets to an underage child and detail how those assets will be managed until the child reaches a specified age that allows them to take control of the assets themselves.
It can be a great way to avoid costly guardianship proceedings.
Separate share trust.
If you have multiple children, this trust might interest you. It allows you to create unique features for each child to better meet their individual needs.
Leaving your assets to someone who isn’t exactly the best at managing money? A spendthrift trust can help you to put your mind at ease that they will be taken care of regardless of any financial mistakes they might make.
Rather than the beneficiary having control, the assets are managed by an independent trustee, and they are protected from creditors if structured properly.
This is a specific type of trust that separates into two different types of trusts after the decedent passes.
Commonly, the “A” portion of the trust is a marital trust that provides benefits to the surviving spouse and will be included in their taxable estate. The “B” portion of the trust is a credit shelter trust that the decedent uses to protect their surviving spouse from having to pay additional taxes on whatever amount is in that trust. Generally speaking, the idea is to minimize the federal estate taxes the surviving spouse is required to pay. This trust is not as important with the creation of estate and gift tax “portability”.
Sometimes, if a beneficiary is aware of the contents of a trust, it can create a conflict of interest. When this happens, blind trusts can be useful. They allow either a trustee or trustees, or whoever holds power of attorney to manage the assets in the trust without the beneficiaries knowing. Only some states allow for these.
There are two types of charitable trusts. Charitable lead trusts are set up so that certain benefits go to a charity and what’s left goes to your beneficiaries. Charitable remainder trusts denote a particular timeframe during which beneficiaries will receive an income stream, with the remainder of the assets being used for charity.
This is an interesting one that gives a lot of power to the trustees. In a discretionary trust, it is up to the discretion of the trustee(s) to decide which beneficiaries get what using criteria that are laid out in the trust itself. For tax purposes, an ascertainable standard is used to prevent unintended tax consequences. The standard is commonly referred to as HEMS or health, education, maintenance and support.
Want to provide for your descendants without forcing them to pay extra taxes? The generation-skipping trust allows you to distribute assets to grandchildren (or even later generations) without running afoul of estate taxes or generation-skipping taxes.
There are many other types of trusts. For example, there are resulting trusts, constructive trusts, IPUG trusts, defective grantor trusts, charitable lead trusts, charitable remainder trusts, grantor retained annuity trusts, irrevocable life insurance trusts, etc.
Interested in learning more about different kinds of trusts?
When you’re dealing with estate and business planning, especially trusts, this is not a do-it-yourself (DIY) type of thing. As mentioned above, the best thing that you can do is to reach out to an experienced attorney who understands the laws of our state and keeps up with the latest changes. The earlier you start planning; the more secure your family’s future will be.
Barry E. Haimo, Esq.
Strategic Planning With Purpose
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