Special Needs Trusts are created for the benefit of a physical or mentally disabled person, under the age of 65, who will need life-long care. These Trusts are a way to provide financially without jeopardizing any eligibility for supplemental government aid SSI or Medicaid. There are three main types of Special Needs Trusts, and which you choose will depend on your circumstances and type of need.
Asset Protection Trusts are another way to protect your assets from creditors. They can be costly to establish though. A Blind Trust is a Living Trust where beneficiaries have no prior information or knowledge about any of the assets within the Trust. Whomever you appoint as Trustee ultimately will have full discretion over all of the Trust assets and distribution. Blind Trusts would often be a good choice if you anticipate any conflicts of interest.
Another Irrevocable Trust, an Insurance Trust is established with only an insurance policy as the asset. People will use an Insurance Trust to ensure more of their estate will be passed onto beneficiaries.
Spendthrift Trusts are yet another Trust where the beneficiary will not have any sort of direct access to the assets or funds inside. The Trustee or Trustees you appoint have very broad powers to give beneficiaries the amount of Trust funds they see fit.
Spendthrift Trusts are generally used when a beneficiary is either young, or when someone has been financially irresponsible in the past. At that point, whatever is left would be paid to beneficiaries. Generally an option for the very affluent, a Credit Shelter Trust can eliminate or greatly reduce estate taxes as assets are passed on to beneficiaries. A main benefit is the right it affords to surviving spouses once the first spouse passes away.
Needs like those for educational or medical expenses can be covered by not only the income, but also the principle of the Trust. Additionally, assets left after the surviving spouse passes away can be transferred to the final beneficiaries without triggering estate taxes. Many people are under the false pretense that Trusts are only for the very wealthy. The reason they are not is that revocable trusts come with a few key disadvantages. Because the owner retains such a level of control over a revocable trust, the assets they put into it are not shielded from creditors the way they are in an irrevocable trust.
If they are sued, the trust assets can be ordered liquidated to satisfy any judgment put forth. When the owner of a revocable trust dies, the assets held in trust are also subject to both state and federal estate taxes.
The terms of an irrevocable trust, in contrast, are set in stone the minute the agreement is signed. Except under exceedingly rare circumstances, no changes may be made to an irrevocable trust. The benefactor, having transferred assets into the trust, effectively removes all rights of ownership to the assets and, for the most part, all control.
The main reason to select an irrevocable trust structure is taxes. Irrevocable trusts remove the assets from the benefactor's taxable estate, meaning they are not subject to estate tax upon death, and they also relieve the benefactor of tax responsibility for any income generated by the assets.
Irrevocable trusts can be difficult to set up and require the help of a qualified attorney. Actively scan device characteristics for identification.
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Popular Courses. Part Of. Estate-Planning Basics. Wills vs. Types of Trusts. Estate-Planning Strategies. Your Legal Team. Advice for Heirs. Table of Contents Expand. Basic Characteristics of Trusts. Common Types of Trusts. The Bottom Line. Key Takeaways A well-crafted estate plan involves pairing a simple will with the creation of a thoughtfully designed trust, to ensure a benefactor's assets are transferred to their loved ones.
Trusts may be broadly defined as "revocable", which means they may be amended during a grantors living years, and "irrevocable", which means they cannot be altered or revoked.
Trust entities generally pay separate taxes and therefore must obtain a federal identification number and file an annual return. The dynamic of every family is different, so it's important the trust s you select to care for your loved ones after your death is well-suited to your loved ones' needs.
A living trust is often referred to as "inter-vivos". Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
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