What is a Trust

A trusts is a legal holding device, administered by a party called the trustee, that establishes a fiduciary relationship between the person that established the trust (the grantor) and the person that benefits from the trust (the beneficiary).

There are many types of trusts designed to accomplish a verity of goals. The most common are listed below.

Living Trust 
A living trust is a trust established during your lifetime, rather than at death. Much like a comprehensive will, a properly drafted living trust that in turn establishes a testamentary trust, may provide creditor protection for a beneficiary’s inheritance. To avoid probate a living trust must be properly funded during your lifetime. You may be the trustee of your trust and have full control over trust assets during your lifetime. However, if you become mentally incompetent, a successor trustee (usually your spouse) takes over and manages your trust estate with the same power and authority that you had.

Testamentary Trust
A testamentary trust is a trust that becomes effective upon death (via your will or living trust) rather than during your lifetime. A testamentary trust offers the same advantages as a living trust does, but it will not avoid probate if it is part of your Will. If your testamentary trust is part of your living trust and your living trust is properly funded, then you can avoid probate. 

Credit Shelter Trust
A credit shelter trust is a testamentary tax planning trust which assures that your federal and or state estate tax exemption is “sheltered” rather than wasted by your death. It can be established during your lifetime or upon death depending on whether you want to avoid probate or not. It allows you and your spouse to fully use your federal and state estate tax exemptions.

Special Needs Trust
A special needs trust protects government benefits, such as Social Security disability, Medicaid, and similar benefits that a disabled beneficiary receives from being forfeited.

GSTT or Dynasty Trust
A GSTT trust allows generation after generation to benefit from the trust without having trust assets included in the beneficiary’s estate for estate tax purposes. Generation-skipping transfers which exceed the exemption amount (currently $11.4 million for an individual) are subject to a flat 40% GSST tax in addition to estate and gift taxes.

QTIP Trust
A qualified terminable interest property trust is generally used in a second marriage situation when one second spouse is to receive trust income and benefits for life and upon the spouse’s death, the principal of the trust will be distributed to children from a prior marriage.

QDOT Trust
A qualified domestic trust allows use of the marital deduction for assets passing to a non-citizen spouse. Without it, transfer taxes may be due on assets passing to a non-citizen spouse.

ILIT Trust
An “Irrevocable Life Insurance Trust” prevents life insurance proceeds from being included in your estate for estate tax purposes. Typically, life insurance proceeds are included in your estate even though they are payable to your spouse, children or other beneficiaries at death.

QPRT Trust
Qualified personal residence trust is designed to pass a personal home from his or her estate for the purpose of reducing the amount of gift tax that is due when transferring assets to a beneficiary.