People are different. They have different lifestyles, beliefs, family models, finances, etc. This can all play into how someone wants to leave their estate. Furthermore, there may be challenges with one or more heirs. An example is family members struggling with addiction or horrible finances. The law recognizes this, so there are various trust options to address people’s needs and concerns.

Can a Will address this?

A will addresses how a person’s assets are distributed after death and go through probate court. In addition, it may not protect some beneficiaries, and there may be better options than the outright distribution for some inheritors.

Is a Will the same as a Trust?

The short answer is no. Trusts are legal documents that serve as separate entities with distinct rights. Furthermore, they protect beneficiaries and control how assets are dispersed.

What options are out there?

Asset protection trust – Asset protection trusts protect a grantor’s assets from creditors and other parties entitled to claim against them.

Blind trust – Blind trusts conceal the Grantor’s assets and limit the Grantor’s involvement in their management. Politicians or public officials who wish to avoid the appearance of a conflict of interest use these.

Charitable trust – An irrevocable trust from which assets go to one or more charities the Grantor elects.

Life Insurance Trust – A life insurance trust is an irrevocable trust designated to hold life insurance proceeds. Grantor selects a trust as the beneficiary of their life insurance policy and leaves the proceeds when the person dies to go into the trust. The trustee then manages the proceeds on behalf of the beneficiaries. The advantage of an irrevocable life insurance trust is that it allows a person to avoid estate taxes on life insurance payouts. Furthermore, to avoid estate taxes, specific criteria must be met.

Totten trust – A Totten trust is a bank account opened by the depositor naming a trustee as beneficiary. To cancel these trust, one of the following must occur:

• Withdrawing all funds from the bank account
• Making an express revocation in writing during the depositor’s lifetime
• Death of the beneficiary

Additional options for families:

Generation-skipping trusts – A trust in which a person transfers money to grandchildren or people at least 37.5 years younger than Grantor.

Qualified personal residence or terminable interest property trust – Qualified personal residence trusts allow the owner of the home to remain living on the property for some time with “retained interest” in the house; once that period is over, the interest remaining is transferred to the beneficiaries as “remainder interest.” This applies if a widow remarries but wants their heirs to inherit the property but still let their current spouse reside in residence after the Grantor’s death.

Any protection for married couples?

Credit shelter or bypass trust – A credit shelter trust (CST) is for married couples. Once a spouse dies, assets are placed in a trust and held apart from the surviving spouse’s estate, and this trust lasts the surviving spouse’s lifetime. By doing this, they may pass tax-free to the remaining beneficiaries upon the surviving spouse’s death.  

Marital trust – Marital trusts are a type of credit shelter trust, but not the same. They provide for a spouse following their partner’s death. This trust transfers assets to the surviving spouse without subjecting them to federal estate taxes. However, the surviving spouse’s heirs would be responsible for paying estate taxes on any remaining trust assets that eventually go to them.

Which trust protects beneficiaries?

Grantor retained annuity trust (GRAT) – Allows the Grantor to direct certain assets into a temporary trust. This freezes their value, which removes additional appreciation from the estate. Doing this leaves their heirs with minimal estate or gift tax liability.

Separate share trust – Separate share trusts never transfer assets into the beneficiary’s name. By leaving assets in a trust, creditors cannot reach the assets to settle the beneficiaries’ debts. If the beneficiary were to go through a divorce, the inheritance would not be a part of the marital estate. If the beneficiary is struggling with addiction, a separate trust could specify an amount the beneficiary can receive along with parameters on how to use the inheritance. The beauty of an separate share trust is that an attorney can tailor it to specific issues and needs of the beneficiary. If the beneficiary receives an outright distribution, there is no control over its use.

Special needs (aka functional or supplemental needs) trust – a tool that enables a person with a disability to receive financial support. These trust do not negatively affect any government benefits they’re receiving, like Medicaid or Supplemental Security Income (SSI).

Which trusts determine money spent?

Education trust – Beneficiaries can only use the money for educational expenses.

Spendthrift trust – The trustee decides how the beneficiary can use the money when there are concerns about the beneficiaries financial decisions.

Testamentary trust – A testamentary trust funds upon Grantor’s death, and established as part of a Will. A grantor makes instructions in their Will for a named Executor, and these instructions outline the management of the assets by a trustee and transfer to beneficiaries.

Who can help write a trust?

Talk to an estate planning attorney. They can write one and determine which trust is right for you.