Revocable Trusts

  1. Asset management. They permit the named trustee to administer and invest the trust property for the benefit of one or more beneficiaries.
  2. Probate avoidance. Revocable Trust are extremely helpful in avoiding probate. If ownership of assets is transferred to a revocable trust during the lifetime of the trustmaker/settlor so that it is in the trust at the time of the trustmaker’s /settlor’s death, the assets will not be subject to probate.
  3. Tax planning. While the assets of a revocable trust will be included in the grantor’s taxable estate, the trust can be drafted so that the assets will not be included in the estates of the beneficiaries, thus avoiding taxes when the beneficiaries die.
  4. Not an Asset Protection. Although useful to avoid probate, a revocable trust is not an asset protection technique as assets transferred to the trust during the trustmaker’s/settlor’s lifetime will remain available to the trustmaker’s/settlor’s creditors.

Irrevocable Trusts

An irrevocable trust cannot be changed or amended by the grantor. Once a property is transferred to an Irrevocable Trust, no one, including the trustmaker/settlor, can take the property out of the Trust. The property transferred into the trust may only be distributed by the trustee as provided for in the trust document itself. This type of irrevocable trust can be proper for Medicaid planning.

Testamentary Trusts

The testamentary trust is a trust created by a will. Such a trust has no power or effect until the will of the grantor is probated. Although a testamentary trust will not avoid the need for probate and will become a public document as it is a part of the will, it can be useful in accomplishing other estate planning goals.

Supplemental Needs Trusts

The purpose of a supplemental needs trust is to enable the trustmaker/settlor to provide for the continuing care of a disabled spouse, child, relative or friend. The beneficiary of a well-drafted supplemental needs trust will have access to the trust assets for purposes other than those provided by public benefits programs. In this way, the beneficiary will not lose eligibility for benefits such as Supplemental Security Income, Medicaid and low-income housing. A supplemental needs trust can be created by the trustmaker/settlor during life or as Testamentary Trust.

Tax By-Pass Trust

A Tax By-Pass Trust is a type of Trust that is created to allow one spouse to leave money to the other, while limiting the amount of Federal Estate tax that would be payable on the death of the second spouse. While assets can pass to a spouse tax-free, when the surviving spouse dies, the remaining assets over and above the exempt limit would be taxable to the children of the couple, potentially at a rate of 55%. A Tax By-Pass Trust avoids this situation and saves the children perhaps hundreds of thousands of dollars in Federal Estate taxes, depending upon the value of the estate.

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