The Different Types of Trust
Trusts are legal entities created to hold and manage assets for the benefit of one or more individuals or organizations. Trusts are often used to provide for future generations, protect assets, and facilitate estate planning. While trusts can be valuable tools, disputes, and conflicts surrounding trusts are not uncommon. Trust litigation is the legal process that arises when conflicts arise in the administration or interpretation of a trust.
In trust litigation, various types of trust can be subject to dispute. Each type of trust has its unique characteristics, governing rules, and potential issues that may arise. Understanding the different kinds of trust involved in litigation can help individuals navigate these complex legal matters. This article provides an overview of some of the most common types of trust seen in trust litigation cases.
The different types of trust include the following:
Revocable Living Trust
A revocable living trust, also known as an inter vivos trust, is a trust that can be modified or revoked during the trust creator’s lifetime. This type of trust is commonly used for estate planning. It allows the trust creator to maintain control over their assets while providing for transferring those assets upon their death. In trust litigation, disputes may arise around the trust’s validity, the trustee’s actions, or claims of undue influence over the trust creator.
An irrevocable trust, as the name suggests, is a trust that cannot be modified or revoked once it is established, except under certain limited circumstances. This type of trust is often used to protect assets from estate tax creditors or provide for beneficiaries’ long-term care. In trust litigation, conflicts may arise for a variety of reasons. From the trust management, claims of breach of fiduciary duty by the trustee, or challenges to the trust’s validity.
Married couples commonly use A-B Trusts as part of their estate planning. When the couple creates the trust, it is revocable and amendable. When the first spouse dies, the trust splits into two sub-trusts, Trust A and Trust B. Those two sub-trusts get funded with the assets from the original trust. Typically, Trust A contains the surviving spouse’s property, and Trust B includes the deceased spouse’s property. The spouses’ community property can be divided evenly between the two sub-trusts. It is worth noting some A-B Trusts have terms that permit each sub-trust to be funded with an equal amount of community property without having to divide each asset between the two sub-trusts.
A-B Trusts used to be used for estate tax planning when the estate tax threshold was much lower than it is today. They are still practical planning tools for spouses who don’t want their wishes changed after their death and for blended families where the spouses want to leave their respective property to their biological children.
Life Insurance Trusts
Life Insurance Trusts or ILITs for Irrevocable Life Insurance Trusts used to be quite common when the estate tax threshold was much lower. They are less common today, but you might still encounter one given extended life spans. ILITs should only contain life insurance. It may have different terms than a revocable living trust created by the same person. The life insurance owned by the trust was paid for using the settlor’s money over the years until the trust could self-finance the policy. The rules concerning the administration of an ILIT are the same as for every other type of trust in California.
Individuals can better protect their interests and rights by knowing the various types of trusts. More importantly, the potential issues that can arise in trust litigation. Trusts are designed to provide security and peace of mind for the trust creator and beneficiaries. However, when conflicts occur, the legal process of trust litigation is necessary to resolve disputes, ensuring the proper administration of trust assets.
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If you would still like more information on Trust Litigation and removing a Trustee or your rights as a beneficiary, check out our complete Overview of California Trust Litigation on our website. And if you have more questions about your rights as a Beneficiary and what you should know moving forward.
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