10 Types of Trusts

hey estate planning attorney paul ramilee here and in this video we're going to talk about 10 yeah count on 10 different types of trusts all right so here's the background there's a lot of different types of trusts and maybe before we get into the 10 different types of trust we might need to just answer what is a trust so i'll give you kind of the technical definition and you and you'll get a much better understanding as as we go into some of the practical reasons people form some of these 10 trusts as we go through the 10 types of trust but if we were to look at the you know technical definition of a trust you know it's often defined as what's called a relationship where one person transfers assets or property to a person so that that person can manage it on behalf of another person or other people so you'll understand a lot more as we as we go through it and i'll i'm going to define or give a name to each of these different types of trusts but note that in most cases it's not an official name for example i could say you know one type of trust uh you know joe attorney down the road set up a children's divorce proof trust and uh anna down the street set up a children's inheritance trust and all the provisions of those trusts are identical so my point is don't necessarily get hung up on the name but uh and i'll point out a circumstance or two where and you know there is a kind of a recognized name for a certain type of trust also you need to know that there's there's some overlap here i'm going to go over 10 different types of trusts but all trusts are either revocable trusts or irrevocable trusts and all trusts are either living trusts or testamentary trusts so if i'm going to tell you 10 different kinds of trust there's going to be some overlap on revocable irrevocable living testamentary we'll get into it as we go through the ten okay so let's get started really in no particular or order but the first one is the one that you we see a lot of it's that revocable living trust the idea there is if you leave assets like your home your real estate investments that you have maybe a private privately held business interest that you own if you pass away with those assets in your name those assets will be frozen and your survivors will have to hire attorneys to guide the family through this court and attorney involved probate process because that's just the way it is when you die with something like that in your name it's frozen and judges and court proceedings are necessary to get the appropriate court orders to order third parties to transfer those frozen assets to the names of the heirs or beneficiaries so many people in an attempt to avoid their survivors from having to go through that court and attorney-involved probate process they set up what's called their revocable living trust the idea is set up your living trust which really replaces your will you put all of those terms that that would be in your will you put them in your trust you designate a trustee to handle your trust when you die kind of the secret sauce is things in a trust don't have to go through any kind of court and attorney involved probate process when you pass away so that trustee that you name of your trust when you die can immediately disperse the assets to the trust beneficiaries without all of the court and attorney involvement that's number one is the revocable living trust trust number two is what i'll call a trust for minors many parents with minor children many grandchildren they want to leave assets to minors you know the 30 year old mama and daddy they got two kids who are eight and five and so often times in the parents wills they will establish a testamentary trust more on testamentary trust as number five but um they'll say in their wills if we pass away uh we want our assets to go to our children but we want them to go in a trust for our children and the reason they do that is because they don't want the the judge's office at the courthouse to have to monitor all those assets that miners inherit they want to designate perhaps a family member or some type of trustee to oversee the minors assets until they're older not just until they're 18 but perhaps until they're 25 or or perhaps they'll designate the trust term is the the children after the parents pass away the children can receive the assets in stages maybe a third at 25. a half of what's left at 30. the rest of 35 or maybe the parents will say the term of that trust we're going to leave that to the trustees discretion maybe those parents say we're going to appoint our brother as the trustee we trust him implicitly and so we give our brother the discretion to to determine when our children can when he can turn those assets over to the children and allow the children to own them themselves so and lots of grandparents do the same for grandchildren and so that's that trust for minors number three is what i'll call again no official name for it but i'll call it a medicaid trust many seniors those in their 60s and those in their 70s they are worrying these days those middle to you know middle class seniors are worrying these days because um the way our system in america works is if you get to a point in your lifetime and you're unable to care for yourself and you need round-the-clock skilled care that nursing homes provide you got to pay for it if you have assets and nursing home costs depending upon where you live and what the facility is may range anywhere from five or six thousand dollars a month to ten or twelve thousand dollars a month or more and you get essentially you have to pay all of that cost yourself and imagine a married couple going in at the same time they've got to pay double that rate so what many people do is they get a little bit creative they set up these these what i'll call medicaid trusts and ideally they do it at least five years before they go into a nursing home don't wait until the last minute the idea is it's it's a form of an irrevocable trust and as long as it's done the right way then a a senior or a senior couple will transfer assets to that particular trust for the benefit of their children or grandchildren to get perhaps when when the people who are setting up the trust pass away and um as long as five years you know or when five years goes after the trust is set up and assets are transferred to it those assets will not have to be spent on future nursing home care so that's the idea is it it enables a individual or a couple to protect protect assets in case they go into a nursing home in the future trust number four is what i'll call a special needs trust a lot of people out there god bless them those parents who have raised children with special needs there's a special place up there for those parents those those children with special needs often are getting certain government benefits and one of the reasons in addition to the fact that they are special needs one of the things that enables them to get those government benefits is that those special needs children have very few assets so if a special needs child inherits a chunk of assets they're likely to lose those government benefits so many parents give or bequeath assets to a special needs child but it goes into what's called a special needs trust again an irrevocable trust but has to have the right terms in it to enable that special needs child to continue getting their their government benefit that they've been entitled to trust number five mentioned it earlier is a testamentary trust a lot of people have heard of it but i find a lot of people don't really understand what a testamentary trust is and even if they think they understand it they don't understand it so that this testamentary trust is a kind of recognized term in in the trust code and the reason the word testamentary is in testamentary trust is because the terms of the testamentary trust are inside someone's last will and testament so i mentioned the the parents trust or the minors trust earlier a parent may say when i pass away and and the parents will we'll say when i pass away i leave my estate to my children in a trust and so um that trust doesn't get funded or doesn't get created or no assets get transferred to that testamentary trust until the person who wrote the will with the testamentary trust in it until that person dies and the family goes through the probate process to use the will to get the assets transferred from the name of the person who wrote the will into that testamentary trust we get a quest questions all the time is yeah you know something like yeah we realized they had a testamentary trust but where's the trust they think that in addition to the will there's some other trust instrument there isn't all of the terms of a testamentary trust are within the four corners of that will testamentary trust is trust number five trust number six is what i'll call a spousal trust and i'll tell you right now there's a gazillion names for a spousal trust kind of lumped into that i could say credit shelter trust a b trust q-tip trust and some of that has some tax implications i'm really going to go over the non-tax non-estate tax implications so by spousal trust here's the problem spouse dies spouse has an estate spouse also have a has a surviving spouse and so the problem is when that first spouse dies leaving their estate to the surviving spouse the potential problem is the surviving spouse could remarry leave the entire of both of the states to the new spouse that surviving spouse could get influenced by someone in their old age and with a signature disinherit the children of that couple so many people in there either in their will or in their living trust here we go again confusion they will provide that you know a husband for example might say when i die i want all of my assets to either remain in or go into a trust for the benefit of my spouse and if my spouse needs to use those assets for my spouse's health education maintenance and support then the trustee has the authorization to distribute assets to my spouse for those needs however my spouse can't direct where those assets go when my spouse dies when my spouse dies then any remaining assets in the trust revert back to my children or my heirs whoever that is designated so a spousal trust very very very common as a way to make assets available for the surviving spouse but give the children or heirs of the first spouse to die protection from the surviving spouse doing something strong word stupid okay so uh that's trust number six trust number seven is the islet ilit irrevocable life insurance trust you don't see those as much anymore they were more common when the estate tax affected more families here's the idea right now we have an estate tax exemption that is um that is you know over 11 million dollars so most people don't have that but many years ago the estate tax exemption was six hundred thousand dollars these islets were very very common back then here's the idea mom and dad gift money to their children but they gift money into a trust for their children and then the trustee of that trust uses those gifted funds to purchase life insurance on mom and dad then when mom and dad die a big chunk of money goes into this trust and the insurance proceeds are not subject to or not part of the estate for estate tax purposes of mom or dad and those insurance proceeds could be used to pay the estate tax that was due based on the remaining assets that mom and dad had and again with the estate tax exemptions so high we don't see those as often trust number eight is a charitable trust now a charitable trust is a recognized term under our internal revenue code and two common types of charitable trusts are charitable remainder trusts and charitable lead trusts let me give an example a charitable remainder trust in general is someone transfers assets to this irrevocable charitable remainder trust and in general that charitable remainder trust will say the trustee will pay income and it's going to be defined income back to the person who set up the trust perhaps for the rest of that person's lifetime and then when that person dies any remaining trust assets go to the charity or charities that the person who set up the trust chooses why would somebody do that perhaps they want to get income off of their assets perhaps they want to provide for charity when they die but when they set it up under the rules of these charitable remainder trusts when a person sets it up even though the charity doesn't get anything until the person who sets it up dies because it's irrevocable and then the person who sets it up gets an income tax deduction today based on the present value of what that charity is expected to receive in the future so there's some income and estate tax ramifications to that charitable remainder trust all right we're getting closer to the end trust number nine is what i'll call an asset protection trust some people based on their profession or what they own or or risky real estate matters or they've signed personal guarantees on certain things they worry wow you know something might go wrong in the future and i'm going to get sued for a for a big chunk so i'd like to protect my assets so if i do get sued nobody can take them and so that's the theory behind an asset protection trust lots of rules around that from from fraudulent conveyance rules you know you do this stuff too late after a matter already exists so again those asset protection trusts are are really never revocable they're always irrevocable but that's a concept that some people worry about and some people take advantage of that and then the tenth type of trust i'll probably leave the most complicated for last it's what's called a crummy trust not crummy as in lousy but crummy as in the name of somebody who challenged some irs statute c-r-u-m-m-e-y the idea there is yes um each person mom and dad for example can give away fifteen thousand dollars to as many people as they want to every year and it doesn't count toward their estate tax exemption that they're using and they can give that those make those gifts outright to their children or to whoever they want to or they can put those assets in a trust for those uh beneficiaries but the problem with putting it in a trust for the beneficiaries is you're giving those beneficiaries a future interest in that money you're not giving them a present interest in the money so that won't qualify for the 15 000 present interest annual exclusion so if you want that fifteen thousand dollar gift to not count towards your estate tax exemption but you want it to go into a trust you have to give them the beneficiaries crummy rights essentially you have to say i'm putting fifteen thousand dollars in a trust for you to get in 30 years and but you have the right if you want to to take it for the next 30 days for example but if you don't take it it stays in the trust and it remains there pursuant to the trust terms they never take it because you're not going to give them anything else if they take it so it's just a it's called a crummy withdrawal right that enables people to transition more of their wealth to their survivors you know and from a long-term perspective okay boy that was a lot of material there but i went through 10 important ones and there's there's a few more but i feel like those are the most common uh real important that you smash the like button hit the notification or the subscribe button with the notification bell does two things tells youtube hey show paul's videos to more people and then also once you hit that subscribe button you won't miss anything in the future we'll see you next time hope you enjoyed watching this half as much as i enjoyed making it you'll have a great day

Channel: America's Estate Planning Lawyers

Views: 118,458

Keywords: Types of Trusts, Kinds of Trusts, What is a Trust, Revocable vs Irrevocable Trust, Louisiana Trust, Revocable Living Trust, Trust for Minors, Medicaid Trust, Special Needs Trust, Testamentary Trust, Spousal Trust, ILIT, Charitable Trust, Asset Protection Trust, Crummey Trust

Id: EQ6OoxwcAw4

Length: 17min 26sec (1046 seconds)

Published: Thu Oct 22 2020