Which Type of Trust is Right for You?

Select a Trust

The world of estate planning can be complex to navigate. Trusts, in particular, present a myriad of options. From Revocable Living Trusts to Special Needs Trusts, the choices are vast. Each trust type carries its own benefits and considerations. This blog aims to simplify these options. It provides a comprehensive overview of several trust types, helping you make an informed decision. Whether you're planning your estate or seeking to understand trusts better, this article is for you.

Let's delve into the world of trusts and explore your options.

Understanding Trusts and Their Importance in Estate Planning

Trusts are a fundamental part of estate planning. They offer a way to manage and protect your assets, both during your lifetime and after. A trust is a legal arrangement. It involves a trustee holding and managing assets for the benefit of others, known as beneficiaries. Trusts can be tailored to your specific needs. They can help minimize estate taxes, ensure privacy, and avoid probate. Understanding the numerous different trust options is key. Each allows for a more tailored approach to estate planning.

Here are some key aspects to consider:

• The goal of the trust
• The type of trust that best suits your needs
• The process of selecting a trustee
• The impact of state laws on trusts

What is a Trust?

A trust is a distinct legal entity established to hold assets for the benefit of designated individuals or organizations. Just as a will is created by a testator or testatrix, a trust is formed by a grantor. The grantor transfers ownership of assets to the trust, which is subsequently managed by a trustee.

Why Consider a Trust for Estate Planning?

Trusts offer several advantages in estate planning. They provide an avenue to manage and protect your assets regarding just about any situation one can think of. Trusts provide a legal tool of control over your assets that remains effective even after your death. 

Key Terms and Roles in a Trust

In a trust, the grantor transfers assets to the care of the trust, where they are managed by the trustee. The trustee, bound by a fiduciary duty, is obligated to act in the best interests of the beneficiaries—those individuals or organizations designated to benefit from the trust. The beneficiaries receive income or assets from the trust according to the grantor's instructions, ensuring that the trust's purpose is fulfilled.

Exploring the Different Types of Trusts

Exploring Different Trusts

There are various types of trusts, each with distinct characteristics, and understanding these nuances can guide you in selecting the right trust to meet your needs. Trusts can be broadly classified into revocable and irrevocable. Revocable trusts offer flexibility, allowing the grantor to modify or revoke them as desired. In contrast, irrevocable trusts, once established, cannot be altered without the consent of the beneficiaries. Whether a trust has a single beneficiary or many, any changes to its terms hinge on the beneficiaries' agreement. Let's delve into some of the common types of trusts in greater detail.

Revocable Living Trust

A Revocable Living Trust is a favored choice for many due to its flexibility and control over assets during one's lifetime. This type of trust can be altered or dissolved at any time while the grantor lives, making it an adaptable option. Revocable Living Trusts provide the flexibility for the grantor to make continual updates, changes, or adjustments to the rules of the trust while they live. This control of assets is the peace of mind that many need to feel at ease that their legacy is taken care of. Upon the grantor's death, the trust becomes irrevocable, and the assets will be distributed to beneficiaries without the need to probate those assets. Should the trustee wish to adjust the trust at this point, all beneficiaries would need to agree to the adjustments.

Testamentary Trust

In contrast, a Testamentary Trust is established through a will and only takes effect after the grantor's death. While it can be an effective tool for managing the distribution of assets posthumously, it is subject to probate and does not provide the same level of control or privacy benefits as a Living Trust. Often, a Testamentary Trust is established during probate to protect assets that are unable to be distributed to beneficiaries due to unmet predetermined conditions (such as age or education). The trustee for this trust is selected by the Grantor in their Last Will and Testament; but will be selected by the courts if this person declines or is left unnamed.

Irrevocable Living Trust

An Irrevocable Living Trust is a permanent legal arrangement that, once established, cannot be altered or revoked without the beneficiary's consent. This type of trust offers substantial benefits, including significant tax advantages, assistance with Medicaid eligibility, controlled asset distribution, protection from creditors, and privacy from the probate process. As a potent tool in estate planning, asset protection, and tax management, an Irrevocable Living Trust demands careful consideration and professional guidance due to its incredible difficulty to alter. Once assets are placed in the trust, they are removed from the grantor's estate and bound by the trust's terms.

Supplemental Needs Trust

A Supplemental Needs Trust (“SNT”), sometimes referred to as a “Special Needs Trust,” is a Trust that allows you to leave money for your loved one with special needs without harming their eligibility status for governmental assistance benefit programs. Funds can be made available while you are alive and in the event of your death. Providing funds to someone receiving benefits, without, first, establishing an SNT, could accidentally cause your loved one to lose their benefits if they receive a gift or an inheritance. An SNT is a smart way to take care of your loved one with special needs without inadvertently causing them harm.

Spendthrift Trust

Spendthrift Trust

A Spendthrift Trust is designed to safeguard beneficiaries from their own poor financial decisions and protect the trust assets from the beneficiaries' creditors. The trustee retains full control over the distribution of assets, preventing irresponsible spending by the beneficiaries. Establishing a Spendthrift Trust can be a good option if you have concerns about a beneficiary's financial responsibility. It's important to select a financially responsible trustee who is capable of looking after your beneficiaries' best economic interests.

Charitable Trust

A Charitable Trust is set up to benefit a charitable organization. It can provide tax benefits for the grantor. This type of trust can be a powerful tool for philanthropy. It allows you to leave a lasting legacy to causes that matter to you. A Charitable Trust can also provide income for you or your beneficiaries during your lifetime.

Pet Trust

A Pet Trust is a legal arrangement designed to ensure the ongoing care of your pets after your death. It allows you to specify, with clarity, the precise type of care you wish for your pets, and to designate a trusted caregiver. This trust can offer peace of mind, particularly for owners of pets with long life spans, such as birds, horses, or turtles, but it also serves as a compassionate option to provide for all beloved companions.

QTIP Trust

A Qualified Terminable Interest Property (QTIP) Trust offers a refined approach to managing the distribution of assets after your death, particularly in the context of second marriages. This irrevocable trust ensures that the surviving spouse receives income for life while preserving the principal for the beneficiaries designated by the first spouse. Upon the surviving spouse's passing, the remaining assets are transferred to these chosen beneficiaries. This structure not only provides for the surviving spouse but also guarantees that the remainder of the estate ultimately benefits those you intended. For individuals concerned about their children being marginalized in a blended family, a QTIP Trust offers reassurance that your designated beneficiaries will receive their rightful share of the estate as planned.

Grantor Retained Annuity Trust (GRAT)

A Grantor Retained Annuity Trust (GRAT) is an irrevocable trust designed for strategic wealth transfer. The grantor places assets into the trust and receives an annuity for a specified period, with the payments determined by the hurdle rate. If the grantor outlives the trust's term, any appreciation of the assets beyond the hurdle rate is passed to the beneficiaries without incurring additional taxes. A GRAT is a powerful tool for transferring wealth to the next generation, potentially offering significant income tax benefits as wealth is shifted to heirs without further gift tax implications after accounting for the grantor's reported income taxes.

Contact a Trusts Attorney in Washington Today

Whether you have a modest estate or a substantial one, establishing a trust might be the ideal solution for managing your assets and determining their distribution after your passing. Our trust attorney in Spokane will carefully assess your goals, evaluate the assets you wish to place in the trust, and expertly guide you through every step of the process, offering sound legal advice tailored to your needs as the situation evolves.

To learn more about trusts and how a specific one can benefit you, contact The Whipple Law Group by filling out the contact form below or giving our office a call.

Washington Trust Attorney: The Whipple Law Group