A trust is a legal arrangement in which property is transferred by a grantor to a trustee for the management and conservation of the property for the benefit of the named beneficiaries.
There are usually three parties to a trust: the grantor or creator of the trust, the trustee, and the beneficiary. The trustee can be an individual or a bank.
Types of Trusts
Living Trust (Revocable) – Is used to mange assets. Protects in emergencies, such as medical. Avoids publicity and costs of probate. Property is included in the gross estate of the grantor.
Irrevocable Trust – Is used to make gifts and the grantor has loss of control. The gifted assets are not included in the gross estate of the grantor.
Testamentary Trusts – Are created by the will and property does not avoid probate. Property is included in the gross estate of the grantor. Trust is typically used to manage assets of heirs.
Trust for Minors – Is structured to manage assets for minors. Trust may be able to shift income tax burden to lower taxpayer.
Special Needs Trust – Is structured to provide benefits to a beneficiary who would otherwise lose eligibility for public assistance (Supplemental Security Income or Medicaid). The beneficiary is one who qualifies for public assistance by reason of some disability that makes that person unable to hold meaningful employment and with insufficient assets to provide adequate support.
Irrevocable Life Insurance Trust (ILIT) – Is usually created during life and is used to hold an insurance policy, and thus removes the proceeds from the insured’s gross estate. This ILIT is commonly structured to provide income to a spouse to leave the remainder of interest to the children or grandchildren.