by: Tehila Mörtl
As we continue with our elder law series, I thought it is wise to discuss the difference between a trust and a will; as well as, some of the many types of trusts. To begin with, most trusts focus only on specific assets (i.e. life insurance, a particular piece of property) while a will is used to designate how most everything else in one’s estate is distributed. One of the important things to remember is that when placing ones property in trust and turning over any part of their estate to a trustee, he or she also relinquishes a portion of their rights to the trustee.
A trustee may be an individual, company or public body and while most might designate a singular trustee, multiple co-trustees can also be named. The appointed trustee(s) is duty-bound to act on behalf of the well-being of the estate beneficiary(s). While a trustee may receive remuneration for services provided and reimbursement for expenses, all remaining funds and property must be distributed to beneficiary(s) as stipulated in the trust. In the event that the trustee violates their fiduciary duties, courts will not only order reimbursement of unlawfully held funds but, will also impose other sanctions. A trust is regulated by stipulations under which it is established. Please note, in most jurisdictions, a contractual agreement or deed is required when appointing a trustee.
In regard to trusts, there are two basic types. First living trusts also known as an intervivos trust is established and effective during one’s life and can be revocable or irrevocable. A testamentary trust; however, is established in a will and takes affect only after one’s demise, at the time the will goes into effect. It is important to note that in many states, trusts are generally considered irrevocable unless otherwise established during creation
A revocable trust allows the individual to maintain control of all assets listed in the trust and may be revoked or terms changed at any time. When establishing an irrevocable trust, on the other hand, the assets listed are no longer the property of the individual who created the trust and generally cannot be changed unless sanctioned by the beneficiary.
There are also numerous other types if trusts of which the most common include:
- Asset Protection Trust – is established to protect assets from creditors
- Bypass (or AB) Trust also known as Credit Shelter Trusts – limits the amount of federal estate tax that must be paid upon the individual’s demise allowing one to leave protected monies to their spouse
- Charitable Trust – often utilized to lower federal estate and gift taxes, is to provide for a charitable donation to a specific organization
- Clifford (or Short-Term) Trust – is irrevocable and established for a minimum of 10 years plus 1 day after which the income from the property is disbursed to the designated beneficiary while the property itself is then returned to the settlor upon expiration of the trust
- Crummey Trust – allows the trustee to disperse or accrue income from the trust; meanwhile, the beneficiary(s) is permitted to make withdrawals up to the annual gift tax exclusion if done so within a designated period of time after deposit.
- Custodial Trust – is revocable and managed under the care of a custodial trustee on behalf of a disabled or incapacitated beneficiary
- Discretionary Trust – is overseen by a trustee who remains in control, under broad-spectrum guidelines, of how and when to distribute assets to the beneficiary
- Dynasty Trust – also known as a generation-skipping trust is established by those with substantially estates to pass on properties to latter generations while bypassing estate taxes and creditors
- Implied Trust – is one established by the court as an equitable remedy for inaccurately distributed property
- Irrevocable Trust – may not be revised, altered or ceased by settlor once established.
- Land Trust – allows the trustee to retain the land title while the beneficiary maintains the ability to direct the trustee, draw income and manage the property as they see fit
- Living (or Inter Vivos) Trust – is effective during settlor’s lifespan and devised as revocable allowing settlor to sustain control of the property during his or her lifetime
- Pooled Trust – is what one might anticipate by the name, a trust with multiple beneficiaries whose assets are pooled together under an umbrella trust to maximize investment and are typically created and sustained by non-profits
- Secret (and Semi-Secret) Trust – is an oral covenant established between settlor and trustee. The settlor generally leaves a gift to the trustee through their will for the benefit of a third-party beneficiary. A secret trust is not in any way alluded to in one’s will while a semi-trust is mentioned in the will; however, does not include the identity of the beneficiary and/or is vague in regards to the specific terms of the trust
- Special Needs (or Supplemental Needs) Trust – are created to provide supplemental income for a family member or loved one who is disabled. By utilizing a Special Needs Trust, the recipient can avoid reduction or dismissal of governmental benefits
- Spendthrift Trust – remains outside the reach of creditors until the property is dispensed to the beneficiary. This type of trust ensures that the beneficiary does not sell or give away his or her financial interests
- Testamentary Trust – is another of the few included in a decedent’s will under which terms and conditions are ascertained and the property is passed on to the beneficiary at the time the will takes effect
- Totten Trust – is a revocable trust into which money is deposited into a financial account in the settlor’s name who acts as trustee for another individual. Those remembering Pay on Death Accounts, should note those are now called Totten Trusts
While there are numerous types of more complicated trusts, pertaining to certain situations, please allow me to share those which are most commonly used:
- Qualified personal residence trusts – allows one to remove the value of a qualified primary or vacation home from their estate; an option, chosen by many whose home is likely to increase in value
- Irrevocable Life Insurant Trusts - can be of tremendous benefit given it allows for removal of life insurance benefits from the taxable portion of his or her estate while assisting in remunerating estate costs and provides beneficiary(s) with allocation of cash. Please be aware that by removing the policy from one’s estate, he or she surrenders ownership rights; thereby, relinquishing the right to borrow against their life insurance policy or revise beneficiary(s); therefore, allowing earnings from the policy to be utilized for estate costs upon death and allows beneficiary(s) to collect proceeds tax-free
- Qualified terminable interest property trusts – are necessitated by divorce, re-marriage and step-children allowing one to bequeath assets and/or property to relatives and loved ones of your choosing. While designated beneficiaries receive the principal or remainder after one’s spouse passes, the spouse will benefit by receiving all income from the trust.
Having reviewed a significant number of types of trusts, one might still ask if they need a Trust Attorney in order to establish a trust. The simple answer is by all means, yes. While trusts can be designed for a number of circumstances, it is vital to take great care with verbiage used when composing a trust. Tax implications alone are reason enough to obtain the services of a Trust Attorney as he or she will review with you the various types of trusts and recommend which will be most advantageous to you and your beneficiaries.
For assistance securing the services of an experienced, qualified trust attorney in New York or in any other state , please feel welcome and encouraged to contact us today at 646-820-9202 and speak with one of our skilled Senior Care Consultants. They will be able to assist you by identifying all of your needs and providing appropriate referrals from our database of qualified specialists. Meanwhile, please be reminded that many of our services are offered FREE of charge and we at Advise & Protect look forward to offering our assistance in whatever manner is needed.