Trusts manage the distribution of your assets after death. They are generally controlled by a trustee—a person selected by you to hold the property and manage it for your beneficiaries.
There are many types of trusts you can set up, some of the most notable and commonly used being revocable and irrevocable trusts, but there are also many types of trusts that can be used in very specific instances. These “specific use” trusts are limited in their use, but they can be very beneficial to you and your beneficiaries when put into place.
Here are five types of trusts you can set up and their specific uses.
#1: Testamentary or After-Death Trusts
After death trusts are created by a will after a person has passed away. They usually consist of assets that have gone through probate and are normally supervised by the courts. One common example is a parent leaving land to a minor child via a will. The will establishes the trust, and the land is transferred to it until the child reaches the stated age.
#2: Charitable Trusts
Charitable trusts are used to make donations for the purpose of reducing the tax burden on an estate. The trust will hold your assets until death, at which point they will be transferred to the named charity/charities. You may continue to use the property even after it has been placed in the trust.
#3: Bypass Trusts
Bypass trusts enable married couples to shelter parts of their estate from estate taxes. When the first spouse passes away, they can leave assets in the trust, providing income to the surviving spouse. When the second spouse passes away, the assets are then transferred to the named beneficiaries without being taxed after the second spouse’s death.
#4: Spendthrift Trusts
Spendthrift trusts are ideal for beneficiaries who are either young or otherwise unable to handle the assets left to them. These trusts can be set up to give the beneficiary small sums of money at specific intervals, preventing the person from spending or losing it too quickly, or for creditors to take it from them.
#5: Life insurance Trusts
Life insurance trusts allow you to name your beneficiary as the beneficiary of a life insurance policy. The beneficiary will receive a payout upon your death. These trusts are often set up to give an estate more liquidity.
Are any of these trusts right for your estate? That is dependent upon your circumstances. It’s best to work with an attorney to find the right trusts for your estate. If you are setting up a trust and appointing a trustee, know that they will normally need to acquire a specific type of surety bond, known as a trustee bond. These bonds provide protection for the beneficiaries should fraud, malfeasance, or mismanagement of estate assets occur. Our team at The Patrick J. Thomas Agency can help obtain these bonds, so make sure to have the person you assign as a trustee get in touch with us when they need a bond.
Disclaimer: this is for informational purposes only and is not intended to be legal advice. If you need legal counsel, please contact an attorney directly.