Types of Trusts
The basic trust that people create to avoid probate is a revocable trust. This type of trust can be revoked or amended as many times as the creators want, so long as they have the capacity to understand and make choices. Once a person is diagnosed with dementia or Alzheimer’s disease where they no longer have capacity to understand their actions, they can no longer make changes to their trust. They can, however, give the power to amend their trust on their behalf to another person, but there are specific requirements on how this power is granted and language granting this power must be stated in the trust as well as in a power of attorney document.
If a person or couple have assets that exceed the amount exempt from estate taxes (currently over $11 million per person), then a trust can set plans in place to reduce estate taxes, and delay payment of any taxes until after the second person in the couple has passed based on a concept called the “unlimited marital deduction.”
A person can also create an irrevocable trust that will remove assets from their taxable estate, so long as it is set up properly and someone other than the person creating the trust acts as the trustee. A large life insurance policy can be transferred to an irrevocable trust so that the insurance proceeds do not result in greater estate taxes to a person whose assets exceed the exemption amount.
Special Needs Trusts
If there is a person in your family that is disabled and receives government benefits, or may receive benefits in the future, a Special Needs Trust can be implemented either within a revocable trust or separately. These trusts make sure that any distribution from a trust safeguard the assets for the benefit of the person who has special needs and will prevent them from being disqualified from receiving their government benefits.
There are many types of charitable trusts that a person can create to provide a benefit to their chosen charity and the benefit can pass to the charity during the lifetime of the person creating the trust, or after their death. Great tax benefits can be achieved, so if you have a charitable nature, you can explore options to create a Charitable Lead Trust, Charitable Remainder Trust, Charitable Unitrust and others.
Education and Pet Trusts
A revocable trust can have a component contained within them to provide for education benefits for a beneficiary or to cover expenses of caring for a pet after a person’s passing. Controls and provisions can dictate what funds will be used for and who will manage the funds and make distributions and who will care for pets.