5 Common Types of Trusts

A trust is essentially a legal agreement between three parties: the trustor, trustee, and beneficiary or beneficiaries. The trustor (sometimes called the grantor or settlor) creates the trust agreement; the trustee is responsible for managing the trust property that has been transferred into the trust; and, the beneficiaries receive the benefits of the property titled to the trust. Here are five commonly used types of trust and what they’re used for.

1. Revocable Trust (also called a living trust)

This type of trust is created during the life of the trustor. It can be changed, modified, or even revoked at the discretion of the trustor. The trustor not only transfers property to the trust, he or she also serves as the initial trustee. A living trust is useful both to avoid probate and for its flexibility, but it is not a strong asset protection tool.

2. Irrevocable Trust

This type of trust, unlike a living trust, cannot be changed, modified, or revoked after it has been created. Once property is transferred to an irrevocable trust, the trustor generally cannot distribute the property from the trust for his or her own benefit.  Irrevocable trusts can be powerful estate planning and asset protection tools in certain situations, including long-term care and nursing home asset protection planning.

3. Charitable Trust

This trust is designed specifically to benefit a particular charity or the public interest in general. Generally, charitable trusts as estate planning tools are used to lower or avoid tax consequences. There is also the benefit of honoring the trustor or a loved one by naming the trust after them.

4. Constructive Trust

This is an implied trust, meaning it is established by the court rather than a trustor. A constructive trust is created based on certain facts and circumstances. In cases where a constructive trust is created, the court has found that there was an intention on the part of the property owner that his or her property be used for a particular purpose or go to particular person.

5. Special Needs Trust

This is a trust that has been created for a person with disabilities who is receiving government benefits to keep that person from becoming ineligible or disqualified from receiving those benefits. A special needs trust (sometimes called a supplemental needs trust) does not allow the beneficiary to control the amount or frequency of trust distributions, and the beneficiary has no power to revoke the trust. This is a powerful estate planning instrument for families with a disabled loved one, to give the loved one benefits of the trust property without jeopardizing the government benefits they are entitled to.

Glenn Matecun proudly serves the citizens of Michigan in the areas of elder law, estate planning, and special needs law. Visit our website to learn more and schedule a consultation.

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