There are many different types of trusts that will accomplish various estate planning and wealth planning goals. Each type of trust can provide great benefit but if it is not the correct trust for your situation it can waste your money and prevent you from realizing your overall objectives. The five most popular trusts are:
Family Trust
There are three main things that a Family Trust can accomplish for you. The first is to avoid probate. The second is to spread out any gifts over time or with certain restrictions instead of gifting a lump-sum. And the third is to hold assets for minors. These types of trusts can be revocable or irrevocable, and contain a myriad of terms based on particular needs.
Special Needs Trust
A Special Needs Trust is primarily designed to preserve assets, especially government benefits that might otherwise be lost, for a beneficiary with a disability. There is very special language that must be included in Special Needs Trust and it is very important that you use an experienced estate planning attorney to help you create one so that your loved one with disabilities is adequately protected.
Credit Shelter Trust
A Credit Shelter Trust is primarily used to help reduce or eliminate estate taxes for high net-worth married couples. Credit Shelter Trusts are created upon a married individual's death and funded with that person's entire estate or a portion of it as outlined in the trust agreement. These assets then flow to the surviving spouse. If done correctly a credit shelter trust can significantly reduce estate tax liability, if not completely eliminate it.
Life Insurance Trust
An Irrevocable Life Insurance Trust (ILIT) is created to own and control a term or permanent life insurance policy or policies while the insured is alive, as well as to manage and distribute the proceeds that are paid out upon the insured's death. An irrevocable life insurance trust is often used to set aside assets for certain purposes, such as paying estate taxes, because these assets themselves are not taxable. In order to do this, the selected assets must be moved into the life insurance trust at least three years before they are used.
Medicaid Trust
Clients often set up a Medicaid trust to protect assets, typically the home or other real estate, from Medicaid and/or nursing home liens. Keep in mind that not all trusts provide Medicaid protection and Medicaid requires a 5-year look back period.
If you are considering creating any type of trust as part of your overall estate plan, contact the experienced estate planning attorneys at Stouffer Legal in the greater Baltimore area. We understand the many types of trusts and can help you select the best one for your situation.
