Trusts
A trust is a legal document that establishes an entity to hold and manage assets for the benefit of specific individuals, causes or purposes. Some trusts are established and take effect during the grantor’s lifetime, while others are created through the grantor’s estate plan and only become active after their death. Each trust operates according to the terms stated in the document.
The person or entity responsible for managing the assets and distributing income or property according to the trust’s terms is called the trustee.
All trusts revolve around three parties:
- the grantor (person creating the trust and providing the assets to fund it),
- the trustee or trustees (who manage the trust assets),
- and the beneficiary or beneficiaries (those named to benefit from or utilize trust assets).
In a trust, a designated trustee becomes responsible for managing the property and other assets owned by the trust.
There are many reasons to establish a trust, including:
- Managing assets in second marriages
- Minimizing or eliminating taxes
- Avoiding or simplifying probate
- Holding assets for children until they reach a certain age
- Providing for a pets’ care
- Ensuring a disabled person can retain eligibility for government benefits
Some Common types of trusts include:
Revocable Living Trusts (RLT)
One of the most misunderstood estate planning documents is a Revocable Living Trust.
During the grantor’s lifetime, he or she creates a Trust and then must transfer ownership of their assets into the Trust. These assets are then managed by the named grantee (often the grantor themselves), and upon the grantor’s death, pass according to the directions contained within the document.
These estate planning vessels are coming into favor as they avoid probate and allow for the assets contained within to transfer directly to the named beneficiary. The other main benefit is as opposed to an Irrevocable Living Trust, a Revocable Trust can be amended or terminated by the grantor during their lifetime.
Irrevocable Life Insurance Trust
Avoid estate taxes while avoiding probate.
While insurance policies and accounts naming a beneficiary pass directly to that person and do not enter a decedent’s estate for probate purposes, their values do count towards any estate taxes that may be owed. An irrevocable life insurance trust kills both birds with one stone by naming a trust the owner of and life insurance policy. The trustee pays the monthly premiums and at the grantor’s death collects the insurance proceeds and distributes them according to the terms of the trust.
Special Needs Trusts
Special Needs Trusts fill the gap between a person’s needs and the assistance they receive
A Special Needs Trust allows a person under a physical or mental disability to receive income managed by a trustee without reducing or preventing their eligibility for state and federal assistance such as Medicare or Medicaid. Any assets held in the trust do not count for the purposes of qualifying for such programs but allow the trustee to ensure the beneficiary’s needs are met when public assistance doesn’t cover everything. Common expenses covered under such arrangements are the salary for a caregiver or transportation as such costs are not usually covered by public assistance programs.
Supplemental Needs Trusts
A Specific Type of Special Needs Trust
A Supplemental Needs Trust functions identically to a Special Needs Trust but instead of being funded by the beneficiary or their family’s already owned assets the Trust is funded as a result of an inheritance, litigation award, or another large single sum.
Trusts for Minors
Protecting your children while also providing for them.
A trust for minors allows parents, other family members, or anyone else to give minors large sums of money but keeps them from spending it improperly. A trustee will oversee the assets in the trust, disburse them to the minors per the trust’s instructions such as to pay tuition or housing costs while preventing the funds from being spent on frivolities such as a new sportscar. The trust document will also provide a set date, usually upon the beneficiary reaching a certain age like 18 or 25 or reaching a life milestone such as graduating college for the remaining assets to be given directly to them.
Pet Trust
Not valid in every state, Maryland allows for the creation of a trust to care for a beloved pet.
In order to ensure the care of a beloved pet or animal companion after one’s death, Maryland residents can create a pet trust. Any assets placed in such a trust must be used by the trustee for the care of an animal alive during the grantor’s lifetime. Upon the pet’s death any remaining assets are then distributed back to the grantor or their heirs.
LEARN MORE
- Reasons to Create an Estate Plan Now vs. LaterHave you ever said or overheard someone else say I do not need a Will, Power of Attorney or Advance Care Directive? By not engaging in estate planning you are allowing laws enacted by the legislature to make your decisions.
- What is a Trust?A trust is a written document that creates a relationship between persons. The grantor or settlor is the person who creates the trust. The terms of the trust are set forth in the document.
- What is a Revocable Living Trust?A Living Trust is one established while the grantor is still alive. A Revocable Trust means the grantor can amend the documents as long as they are mentally competent.