Trust Types & Purposes

Think of a trust as an empty suitcase. It does not have much use until you put something in it. You place assets into trusts such as your home, investment accounts, insurance policies, or family business. Once you do this, you can move and direct the trust on your journey. Below are some of the most common trusts.

Revocable Living Trust

Also known as an "inter vivos trust," the revocable living trust is a very versatile type of trust in estate plans. Its chief function is to avoid probate while also giving you control over your assets and the ability to sell them or change your beneficiaries while you are still living. As with some other trusts, this trust permits you to appoint your guardian should you become unable to manage your assets or medical decisions while you are still alive. If you have multiple trusts, the revocable living trust will typically serve as the "mothership" and contain your other trusts.

Spendthrift Trust

Sometimes called an "inheritance trust," the spendthrift trust serves multiple functions. As the name implies, it may be used to prevent your beneficiaries from receiving an inheritance before they are ready by distributing assets over a period of time as certain ages or milestones are reached. It is also used as a strategy to protect your children's assets from creditors, lawsuits, or claims by their spouse in the event of a divorce. Lastly, this trust can direct remaining funds towards your grandchildren, and only what you decide to in-laws, after your children pass away.

Special Needs Trust

There are several variations of special needs trusts, but they fall into two main types. The first type is a "Third Party" trust, which is set up for someone with special needs, usually a loved one, to provide for their care and comfort. In a Third Party trust, the beneficiary never owns the assets. The second type is a "First Party" trust, which is used for assets the person with special needs owns or will own directly, such as an inheritance, personal injury award, or life insurance policy proceeds. With both types of trusts, rules must be followed after they are in place so as not to jeopardize any benefits.

NFA Gun Trust

The gun trust is an estate planning tool set up to keep Class 3 firearms in the family that may be regulated by the National Firearms Act (NFA). It is used to avoid certain federal transfer requirements and possible confiscation should these requirements not be met. As of 2016, there are additional requirements that your heirs must meet in order to be named as beneficiaries. Talk to us and we can help you navigate this process.

Medicaid Asset Protection Trust (MAPT)

The MAPT is an irrevocable trust used to protect your assets when you have too many resources to be eligible for Medicaid assistance, yet run the risk of depleting those assets due to the costs of in-home care, assisted living, or nursing homes. To learn more about this powerful trust, see our section on it here.

Pet Trust

A "pet trust" is a bit of a misnomer and, in practice, is rarely ever a separate trust drafted specifically for a pet. It is usually a clause, within a revocable living trust, that names your pet's would-be caretaker in your absence. It also sets aside funds for the would-be caretaker of your pet to spend on care, such as food and veterinarian expenses, should your pet outlive you.

Irrevocable Life Insurance Trust (ILIT)

Although life insurance is income tax free, it is still subject to estate taxes, Thus, the ILIT is used as a strategy for reducing or eliminating estate taxes on larger estates. To ensure the IRS does not challenge the trust, rules must be followed. Someone other than yourself or your spouse must be trustee (typically a knowledgeable attorney or CPA), and proceeds must be paid directly to your beneficiaries, not your estate. An ILIT may be funded with various types of life insurance policies, and the "second to die" varieties are usually preferable due to lower premiums. You should not place policies with cash values you planned on using for retirement income into an ILIT.