Many clients ask if they need a trust. There are several types of trusts including but not limited to revocable trusts, irrevocable trusts, testamentary trusts and special needs trusts. Trusts are not for everyone, but can be beneficial for some depending upon that person’s particular situation.
Revocable Trust
A revocable trust is a trust created by a person known as the grantor or settlor while the grantor is still alive. Often times the grantor will also control the administration of the trust for so long as the grantor is alive and able to do so. The title for the role of administering a trust is “trustee”. A revocable trust can be modified or revoked entirely by the grantor during the grantor’s lifetime which makes this trust very flexible to use. A revocable trust is most beneficial to the grantor if it is funded during the grantor’s lifetime. In order to fund a revocable trust, the grantor must title assets that he or she owns to the name of the trust. One benefit of a revocable trust is that it may allow a person’s estate to avoid the probate process if the grantor funds the trust properly.
Irrevocable Trust
An irrevocable trust is one that is sometimes established while the grantor is alive. Irrevocable trusts can also be established in a Last Will and Testament, and thus only spring into existence at the time of the testator’s death. The stark difference between an irrevocable trust and a revocable trust is that the irrevocable trust cannot be modified or revoked once it is established. A few examples of why someone might create an irrevocable trust include the desire to minimize federal estate tax, provide for beneficiaries who are not financially sophisticated or provide for beneficiaries who have special needs.
Testamentary Trust
A testamentary trust is a trust that is established in a Last Will and Testament. A testamentary trust does not spring into existence until the death of the testator or testatrix. The testator or testatrix is the individual who executed the Last Will and Testament. A testamentary trust is often used to put parameters around how funds may be used for the heirs of an estate. For instance, a parent may want to include a testamentary trust for any funds being left to a child so that the child does not mismanage his or her inheritance. With a testamentary trust, the parent can select a responsible adult or entity to serve as the trustee of the child’s inheritance. That trustee will manage the funds for the child until he or she attains an age that the testator or testatrix has set forth in the testamentary trust.
Special Needs Trust
A special needs trust, also known as a supplemental needs trust, is another type of irrevocable trust that is often established by a parent, grandparent or guardian of an individual with special needs. This type of trust is often established so that an individual with special needs may still qualify for government benefits like Medicaid.
If you are interested in learning more about the various types of trusts, please contact us to schedule a free consultation.
To learn more about Sarah and her practice, please visit her profile.
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