Which Type Of Trust Is Right For You?
The cornerstone of most estate plans are wills and one or more trusts. While a will allows you to name heirs who will inherit your assets after your death, trusts give you considerably more control over how, when and in what manner assets are passed to your intended beneficiaries.
If you need help creating a trust or want to learn more about your options, contact our lawyers at Jurist Law Group, PLLC. We have decades of experience in estate planning and trust law, including considerable experience in the creation and administration of trusts.
Understanding Revocable Vs. Irrevocable Trusts
While there are many different types of trusts created for specific purposes (described below), any trust will be classified as either revocable or irrevocable. If a trust is revocable, it can be changed or revoked after being created. A common estate planning strategy is to create a revocable living trust, in which the creator places most or all of their assets. While they are still living, the trust is revocable and they continue to control the assets. Once they pass away, the trust becomes irrevocable and must be administered according to its provisions.
Trusts that are created as irrevocable can only be administered, not changed or revoked. There are however special conditions under Arkansas Law that even an irrevocable trust may be terminated or amended. Sometimes certain amendment powers can be reserved in the trust agreement by the settlor, but only in special situations, such as when a settlor reserves the right to change the beneficiaries of the trust by his or her will. Sometimes amendments are reserved to third parties such as a Trust Advisor or Trust Protector.
Trusts Can Be Tailored For Many Different Purposes
A trust can and should be highly tailored to serve the purposes of its creator and provide for its beneficiaries. The revocable living trust was described above. Other examples of custom trusts include:
Special needs trusts: These are designed for someone who has a disability or incapacity. The beneficiary is someone who is also benefiting from government benefits and support. Parents who wish to secure a stable financial future for their child without disrupting their government support usually opt for a special needs trust. Since the trust, not the beneficiary, controls and owns the assets, the child is not in danger of losing their Supplemental Security Income and Medicaid benefits. It does not matter whether a special needs trust holds $10,000 or $1 million. A beneficiary’s benefits will not be affected as long as they do not own the trust. As a result, the low threshold that is set by the government programs will never be met.
Spendthrift trusts: If you have children or other heirs who either cannot manage a lump-sum inheritance or should not be trusted with one, a spendthrift trust may be the solution. It allows you to distribute assets over time and in a controlled manner, ensuring that they last and reducing the chances that they will be squandered.
Irrevocable life insurance trusts: These can be used to own life insurance policies, among other things, to cover the costs of estate taxes, taking that burden off of beneficiaries.
Charitable remainder annuity trusts: These allow you to both leave assets to your heirs and divert any remaining assets to a charitable cause of your choosing.
Generation-skipping trusts: If you left assets directly to your children, they might be subject to a significant estate tax. By setting aside those same assets to someday be distributed to your grandchildren, you can provide important financial resources to your grandkids while also avoiding those tax obligations.
Grantor retained annuity trusts: These are one of several types of trusts that help you minimize tax obligations on financial gifts to your beneficiaries.
There are dozens of commonly used trusts, and those described above are just a small sample of what’s available. Our attorneys can discuss your needs to help you choose, then create, the most appropriate trust for your situation.