Trusts can be created to serve specific purposes.
When it comes to estate planning, people usually have either a will-based plan or a trust-based plan.
Those with a will-based plan intend to distribute assets through the probate court.
Those with a trust-based plan intend to skirt probate and distribute assets through the instructions provided in the trust.
Whether the foundation for your plan is a last will and testament or a revocable living trust, the inheritance may be held in trust for your loved ones instead of distributed outright.
According to a recent Times Herald-Record article titled “All trusts are not alike,” the type of trust you use depends on what you need to accomplish.
Perhaps you are wondering, “are different types of trusts?”
In fact, there are.
What are they?
Revocable Living Trust
These trusts are created while the trustmaker is alive and can transfer assets into the trust.
After the grantor dies, the trustee will distribute assets to your loved ones based on your instructions.
This saves both time and money associated with probate proceedings, allowing your loved ones to receive more of your money.
This trust can be changed or dismantled by the trustmaker anytime before he or she dies.
Medicaid Asset Protection Trust (MAPT)
A trustmaker creates this “irrevocable” trust to shield assets from nursing home costs.
Because of the “five-year look back rule,” these trusts must be created and funded five years before you need to apply for Medicaid.
For home care costs, assets are only shielded after being in the trust for two and a half years.
The assets in this trust will also bypass probate.
Supplemental or Special Needs Trust (SNT)
This trusts is designed to preserve assets for the use of those loved ones with special needs do not lose eligibility for government assistance.
With this trust, the assets are used for the benefit of the individual with special needs rather than being directly “owned” by the individual.
With this trust, the beneficiary can keep access to Medicaid and Supplemental Security Income, as well as other means-tested benefits.
The trustmaker creates this trust specifically to pass an inheritance to a specific beneficiary.
Whatever remains in the trust after the beneficiary dies will pass to the children of the beneficiary, or wherever the trustmaker has directed.
This type of trust is important when you want to protect the inheritance from potential creditors, lawsuits, or divorces in the life of the beneficiary.
Irrevocable Life Insurance Trust (ILIT)
The purpose of this trust is to minimize estate taxes by keeping the value of the life insurance police of the trustmaker/insured out of the estate.
Pet trusts are for individuals who have pets that will likely outlive them.
With this trust, assets are placed in the trust to fund the care of your pets when you die.
Some people choose to designate separate individuals as the caretaker and trustee.
Others choose to designate one person to fulfill both roles.
When your pets die, you can designate a contingent beneficiary to receive the remaining funds.
This is created as part of the last will and testament when the testator dies.
While these assets do not bypass probate and are included in your taxable estate, the testamentary trust functions just like an “inheritance” trust created under a revocable living trust.
Discuss your estate planning goals with an experienced estate planning attorney to select the best trust (or trusts) given your unique circumstances.
Reference: Times Herald-Record (August 1,2020) “All trusts are not alike”