Understanding the types of trust that are available and discussing your goals and wishes with your estate planning attorney should be accomplished before you settle on which type of trust is best for you.
What kinds of trust are there?
As discussed in our blog, “Trusts, not Just for the Rich and Famous”, trusts can be a useful estate planning tool for just about everyone. There are several varieties of trusts, so you should consult your estate planning attorney to discuss which one would best serve your needs and goals. Some of the more common types of trusts are discussed below:
A testamentary trust is a trust created by a will. Such a trust has no power or effect until the will of the donor is probated upon his or her death. Although a testamentary trust will not avoid the need for probate and will become a public document as it is a part of the will, it can be useful in accomplishing other estate planning goals. For instance, the testamentary trust can be used to provide funds for the surviving spouse in a form that will not be considered available and not have to be spent down if he or she should seek Medicaid eligibility to pay for long-term care.
A revocable trust is sometimes referred to as a “living” or “inter vivos” trust. Such a trust is created during the life of the donor rather than through a will. With a revocable trust, the donor maintains complete control over the trust and may amend, revoke, or terminate the trust at any time. So the donor is able to reap the benefits of the trust arrangement, while maintaining the ability to change the trust at any time prior to death. The trust is usually set up for the benefit of the surviving spouse for the remainder of his/her life, upon the death of the donor. At the death of the surviving spouse, the trust will often be disbursed for the benefit of the donor’s children or heirs. The disadvantage of a revocable trust is that the trust assets are countable to the donor for purposes of determining Medicaid eligibility and it does not provide protection against creditors.
An irrevocable trust is created during the life of the donor, who thereafter may not change or amend the trust. Any property placed into the trust may only be distributed by the trustee as provided for in the trust instrument itself. For instance, the donor can provide that he or she will receive income earned on the trust property. The irrevocable trust where the donor retains the right to income only is a popular tool for Medicaid planning. In addition, this type of trust may provide protection against creditors.
Supplemental Needs Trust
A supplemental needs trust (sometimes referred to as a special needs trust) can be created by the donor during life or be part of a will. Its purpose is to enable the donor to provide for the continuing care of a disabled spouse, child, relative or friend who may be receiving assistance from the State. The beneficiary of a well drafted supplemental needs trust will have access to the trust assets for purposes other than those provided by public benefits programs. Thereby, the beneficiary will not lose eligibility for benefits such as Supplemental Security Income, Medicaid, and low-income housing.
Determining the right type of trust for you will depend on your individual circumstances and goals and requires the guidance of a trust estate planning attorney. Give us a call to discuss your specific situation. We can help ensure that your trust and estate plan are aligned with your personal objectives and offer your desired level of control and protection of your legacy.