Learn about the Different Types of Trusts | Trust Options
If your loved one decides to create an estate plan utilizing a trust, you may be appointed a successor or co-trustee of the trust. It is essential to understand your duties and responsibilities as a trustee. In addition, as a trustee, you also want to know what type of trust you may be working with. There are many different types of trusts, each with its own characteristics. Keep on reading to learn more about the various types of trusts.
Eight Different Types of Trusts:
What are some of the more common types of trusts you may encounter? The following is an overview:
Testamentary Trusts
An important characteristic that sets testamentary trusts apart from others is that they are set up through your loved one’s will and are only established after they pass away. Therefore, your duties as a trustee will not arise until after your loved one has passed, versus a living trust, where your duties could be triggered even while your loved one is still alive.
Revocable or Living Trusts
Perhaps the most common type of trust is one that is created and established during your loved one’s lifetime. During your loved one’s lifetime, they retain control of the trust’s assets and aree free to revoke or change its terms at any time. Your duties as trustee will either begin at the outset, if you are named a co-trustee, or can be triggered if your loved one becomes incapacitated. After your loved one has passed, you become the acting successor trustee.
Irrevocable Trusts
Suppose you are the trustee of a revocable trust. In that case, it is important to understand that your loved one no longer owns or controls the assets in the trust and cannot make changes to the trust’s terms without the consent of the beneficiaries. Revocable or living trusts become irrevocable after your loved one passes away.
Credit Shelter Trusts
Trustees of credit shelter trusts have important duties, including ensuring proper tax elections and allocations after your loved one dies. These trusts are used to reduce estate taxes. During your loved one’s lifetime, he creates this type of trust to shelter a certain amount of his estate from estate taxes while giving the remainder of the trust to a separate trust share without incurring any tax.</p>
Generation-Skipping Trusts
A Generation-Skipping Trust, also known as a dynasty trust, is used to transfer substantial amounts of money tax-free to beneficiaries who are at least two generations below your loved one’s generation. If you are a trustee of this type of trust, it is important to work closely with a good certified public accountant.</p>
Qualified Personal Residence Trusts
Another type of trust you might be in charge of administering is a qualified personal residence trust. This trust removes the value of your loved one’s home or vacation house from their estate.
Irrevocable Life Insurance Trusts
Yet another type of trust designed to minimize estate taxes is an irrevocable life insurance trust. An irrevocable life insurance trust removes life insurance proceeds from a loved one’s estate. The funds are often used to help pay the costs of the estate when it is time to administer the trust, including funeral expenses, estate tax bills, and other costs of administration.</p>
Qualified Terminable Interest Property Trusts
In today’s world, many families are “blended.” This means divorces, remarriages, and stepchildren may all be part of the dynamic. In these cases, qualified terminable interest trusts are sometimes used to direct assets. Qualified terminable interest trust can direct assets to particular relatives after the death of your loved one’s spouse. While the spouse is alive, they may be entitled to receive income from the trust. Conversely, these trusts are more complex than a basic revocable trust. Therefore, it is important to seek assistance from an experienced attorney during the administration process.
Next Steps for different types of trusts
By seeking the assistance of a probate attorney, you can navigate the complexities of the probate process with confidence and peace of mind. If you need more guidance in the probate process, check out our Overview of the California Probate process.
If your case is in California and you’d like an honest opinion, fill out our Get Help Now form. Or contact our office today to schedule your free 30-minute phone consultation by calling us at (888) 443-6590.
FAQ: Different Types of Truts
Do trusts avoid probate?
Absolutely! Living trusts are an effective way to bypass probate, ensuring a seamless and private transfer of assets. This simplifies the process and protects your loved ones from the delays and costs associated with probate.
What are the main types of trusts?
The primary types of trusts include revocable, irrevocable, living, testamentary, special needs, charitable, and asset protection trusts.